Checking Accouts and Savings Accounts

Although they may seem similar, there are several small and one major difference between checking and savings accounts. First the names have different meanings. Another name for checking is transactional, or demand deposits. Savings can be called time deposit, or term deposit. Both are often  offered as free bank accounts.

Depending on the financial institution you bank at, financial records can vary. People can use personal checks instead of cash to pay bills. They also have bank cards and can be used to withdraw money from the bank or ATM machines.

Checking, or transactional accounts usually allow for unlimited withdrawals, whether by check or atm. If you have extra money, or you are trying to save for a rainy day, you may want to protect these funds from theft or loss. If you deposit it in a savings account, or time deposit account, it will be safe and it will usually accumulate interest, depending on the account you have chosen.

For money that you’re using to pay your expenses each month, you’ll want a checking account. This allows you access to your funds at any time. You can order checks that have your bank information and your account information pre-printed on them. In order to give funds to another person, you simply fill out a check against your account and sign it. The check can be given to the recipient, or even sent in the mail, since it’s safer than cash.

The payee can go to your bank and exchange this check for cash. Or they can deposit it in their own account and their bank will get the money from your bank. The funds are deducted from your account and deposited into the payee’s account, or if he goes directly to your bank, handed to him in the form of cash. A check is just an order to your bank to pay a certain amount of money to the payee specified. It’s not actually money itselft.

Banks and credit unions prepare monthly statements for checking account customers. The statement shows how much money has come into and gone out of the account during the month. Customers who keep their own records can compare their figures with those of the bank. Because of the number of transactions involved, checking accounts require a great deal of bookkeeping.

If you’re willing to give up some of your liquidity and keep money in the bank for a period of time in a savings account, the reward is that the bank will pay interest on your money. The interest rate depends on the type of savings account you get. You may earn anywhere from one to five percent. This amount is much lower than what you can earn if you invest the money, but the risk is extremely low too. The interest rates are regulated by the Federal Reserve Board.

Someone who deposits money in a term deposit usually receives a passbook that shows the amount of money in the account. You could only withdraw funds by going to the bank with the actual physical passbook, proving that you were the owner of the account and there were funds available.

Now that everything is electronic, even savings accounts can be accessed using a plastic bank card at the ATM. But unlike checking accounts, frequent withdrawals will cost you in bank fees. There are record finances that can be joined with another individual allowing that person to withdraw as well.

Because savings accounts are time deposits, banks can require thirty days notice before the money is taken out. Now that everything is computerized, though, banks usually allow you to withdraw funds from your savings account with no notice.

Both types of record finances are good, it all depends on whether it is wanted for keeping money and having it grow throughout the year, or having quick access to the money when it is needed.