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Checking Accounts vs. Savings Accounts: What’s the Difference?

August 22, 2018
checking account vs savings account

There are important distinctions between the two.

2 min read

Many people are confused by the different types of bank accounts confused—specifically when it comes to checking and savings accounts.

There are some important distinctions, and while they have different uses, both should probably be a part of your financial plan.

What is a checking account?

A checking account is a standard type of bank account, and likely the one that you are most familiar with.

Checking accounts are typically used as everyday spending accounts. Many people have their paychecks deposited directly into their checking accounts, and then use them to pay their bills and other expenses.

Customers typically do that by writing checks or using an online or mobile banking feature that lets them pay bills electronically.  While checking accounts can have numerous features, many banks charge customers monthly fees for these accounts if they don’t maintain a minimum balance.

What is a savings account?

Whereas a checking account is generally used on a day-to-day basis, savings accounts are designed to save money. Customers typically use them for an emergency, or rainy day fund, or to achieve some other savings goal.

Remember, there could be banks fees and federal taxes on interest accrued by the money you have in a savings account.

Keeping your money in a savings account is a great way to keep it liquid; That is, it’s easily and quickly accessible. That’s one reason a basic savings account could be a good place to keep your emergency fund.

You can also have additional savings accounts that align with your goals. You can have an account to save up for a down payment on a house, for example, or for a new car.

Checking account vs. savings account: What’s the difference?

A  checking account and savings account may seem similar on the surface. Both accounts hold funds for you to use when needed.

Also, neither type of account is likely to earn substantial interest. They typically aren’t very risky, either.

The main difference has to do with the way you intend to use each account. A checking account is frequently designed for day-to-day spending. Savings accounts, on the other hand, are designed to hold money for longer periods of time.

To make things simple: a checking account is for short-term spending and a savings account is long to medium-term saving.

How do checking and savings accounts work together?

Having separate accounts can make budgeting and saving easier.

When you create a monthly budget, you should be able to see if your checking account will have a surplus. If so, that money can be moved to a savings or investment account. When an emergency pops up, you can rest easier knowing you will be able to tap into your savings instead of relying on credit.

Make saving easy

Whether you are saving up an emergency fund or for your retirement, stashing small amounts away can pay off later. Don’t believe us? Take a moment to play with the Stash Invest investment calculator.

You can also put your savings on autopilot with Auto-Stash.

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This material has been distributed for informational and educational purposes only, represents an assessment of the market environment as of the date of publication, is subject to change without notice, and is not intended as investment, legal, accounting, or tax advice or opinion. Stash assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective. The views and opinions expressed in this article do not necessarily represent the views of Green Dot Bank, the issuer of the Stash Debit card.

By Stash Team

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Disclaimers

This material has been distributed for informational and educational purposes only, represents an assessment of the market environment as of the date of publication, is subject to change without notice, and is not intended as investment, legal, accounting, or tax advice or opinion. Stash assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective.

Furthermore, the information presented does not take into consideration commissions, tax implications, or other transactional costs, which may significantly affect the economic consequences of a given strategy or investment decision. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. There is no guarantee that any investment strategy will work under all market conditions or is suitable for all investors. Each investor should evaluate their ability to invest long term, especially during periods of downturn in the market. Investors should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information presented. Before investing, please carefully consider your willingness to take on risk and your financial ability to afford investment losses when deciding how much individual security exposure to have in your investment portfolio.

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