In the United States, banks offer us two types of accounts for these purposes: savings accounts and checking accounts. But what is the difference between these two? When should we use one and when the other? In this article, we are going to help you make the best decision.
What are savings accounts or savings accounts?
To explain it simply, think of a savings account as a digital piggy bank that you have in a bank in the United States.
It can be said that it is a safe place where you can save your money to meet long-term goals, such as buying a house in the United States, saving for your children’s university, or preparing for retirement.
Characteristics of savings accounts in the USA
The main characteristic of savings accounts is that they allow you to earn interest on your money. For example, if you keep $1,000 in a savings account with an annual interest rate of 1%, at the end of the year you would have $1,010.
Let’s look at the main characteristics of this type of account in United States banks.
Interests
As we just mentioned, savings accounts generate interest. This means that your money grows over time, although interest rates vary from bank to bank and are usually relatively low.
So don’t expect to generate much passive income in the USA with this type of bank account.
Transaction limit
Under Federal Government Regulation D, savings accounts are limited to six transfers or withdrawals per statement cycle. However, withdrawals or transfers made in person, by ATM, or by telephone do not count toward this limit.
Minimum deposit
Although this will depend a lot on the banking institution in the United States, some banks require a minimum deposit to open a savings account, although this amount can vary considerably. Some banks even offer savings accounts with no minimum deposit required.
Low Balance Fees
Some banks charge a fee if your savings account balance falls below a certain level. It is important to read the account terms and conditions to avoid these fees.
Likewise, if you do not move a minimum established amount of money each month, you may also incur banking fees. Without a doubt, these types of costs reduce your ability to save money.
FDIC Insurance
Savings accounts at U.S. banks and savings and loan associations are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Share Insurance Fund (NCUSIF), respectively.
This means that even if the bank or savings and loan association goes bankrupt, you won’t lose your money. Without a doubt, this is news that gives you peace of mind if you want to open a savings account in the United States.
What are current accounts or checking accounts?
While savings accounts function as a kind of piggy bank, checking accounts are a type of wallet in a digital version.
It can be said that it is the account you use for your daily transactions; like paying the rent, buying food, or filling the gas tank, so you must be careful not to end up wasting your money in the United States.
Characteristics of checking accounts in the United States
To explain the characteristics of this type of account, imagine Luis, who uses his checking account to receive his salary, pay his bills, and make purchases both in physical and online stores.
When he goes out with his friends, he uses his debit card to pay for his share of dinner without having to worry about carrying cash, thus avoiding using his credit card.
Starting from this simple example, let’s look at the main characteristics of checking accounts in the United States.
Unlimited transactions
Unlike savings accounts, checking accounts have no limits on the number of transactions you can make. This includes withdrawals, transfers, and deposits.
If you have to make many transactions, this type of bank account is the one that best suits you.
Debit card access
Checking accounts, like savings accounts, typically come with a debit card that you can use to make purchases in stores, restaurants, and online. You can also use it to withdraw cash from ATMs.
Checks
With a checking account, you generally have the option of writing checks to pay bills or make other transactions.
This can be especially useful for large payments where you can’t or prefer not to use cash or a debit card. Here we explain how to endorse checks in the United States.
Direct deposit
Checking accounts allow direct deposit, meaning your employer can deposit your salary directly into your account. So, if you work for example at Doordash, you can receive your payment there.
Many checking accounts also allow other forms of direct deposit, such as check deposits through a mobile app. Today, this option is also available in your savings account.
Monthly service charges
Like your monthly savings account fee, many checking accounts charge a monthly maintenance fee.
However, these fees can often be avoided by meeting certain requirements, such as maintaining a minimum balance, using direct deposit, or making a certain number of transactions each month.
Here it is key that you choose the bank in the USA that does not charge you these types of commissions, or that has the lowest rate.
Differences between Saving Account and Checking Account
In short, savings and checking accounts have different but complementary functions.
That is, savings accounts are like the “guardian” of your long-term savings, helping you grow your money over time.
On the other hand, checking accounts are your day-to-day “financial assistant,” helping you manage your regular transactions with ease.
To give you an example, think about Maria, who uses her checking account to pay bills, her children’s school fees, and grocery shopping.
At the same time, each month you transfer a fixed amount to your savings account for your plans, such as a family vacation, buying a car, or your children’s college.
Choose the type of account that best suits you in the United States
Both savings and checking accounts are important tools for managing your money effectively. By understanding the differences between these two, you can make your money work for you, meet your goals, and live with financial peace of mind.
We hope this article has helped you understand the differences between a savings account and a checking account.
If you have more questions, do not hesitate to contact your local bank or a financial advisor, as each bank has features, unique products, and solutions that fit your needs, especially if you are a Hispanic living in the United States.
