National nonprofit American Consumer Credit Counseling shares the benefits and drawbacks of checking and savings accounts
Boston, MA – July 25, 2017
Checking and savings accounts, often considered the most basic financial tools, are also incredibly beneficial to the average consumer in everyday life. Checking accounts help consumers pay bills and savings accounts are more suited to protect money for the future. While there are many advantages to using each type of account, consumers must stay informed about the disadvantages to maintain financial security.
“If consumers do their research they can maximize the benefits of both a checking and a savings account,” said Steve Trumble, President, and CEO of American Consumer Credit Counseling, based in Newton, MA. “Consumers need to be aware of the positives and negatives of both before opening a new account.”
According toU.S. News, more Americans have access to a checking or savings account, a sign that the improving economy is helping lift the nation’s poorest households. The number one reason why Americans say they do not have a checking or savings account is that they believe they do not have enough money to get an account. The FDIC said roughly 57 percent of all unbanked households cited lack of money as a reason not to have an account. With the increase in consumer interest in both checking and savings accounts, it is even more important to understand the benefits and drawbacks of each.
American Consumer Credit Counseling provides consumers with a list of pros and cons checking accounts and savings accounts:
CHECKING ACCOUNTS
PROS:
- Access– the ability to link checking accounts through online banking for ease of fund transfer.
- Credit score– when managed responsibly, a checking account can help a consumer build a higher credit score.
- Direct deposit– many employees and employers find direct deposit, made available for checking accounts, useful and convenient.
- Online option– online checking accounts have quickly become a favorite and convenient way for account holders to manage their money. Account tools can be accessed through a phone or computer and make everyday banking easier.
- Insurance– the Federal Deposit Insurance Corporation, or FDIC, insures most checking accounts.
CONS:
- Fees– many checking accounts come with additional costs such as maintenance fees, ATM withdrawal fees and transaction fees.
- Overdraft fees– overdraft fees, when the balance goes below zero, are determined by each individual bank, making them difficult to understand and often very expensive.
- Minimum balances– some banks require minimum balances enforced by a fee if the requirement is not met.
- ATM limitations– depending on the amount a consumer wishes to withdraw at a time, an ATM may not be a large enough option to suit their needs.
SAVINGS ACCOUNTS
PROS:
- Interest–account holders can save money while making a small amount of interest on their investment.
- Time– consumers can withdraw money at any time from a savings account, unlike other investment options.
- Minimum investment– savings accounts only require a small amount to start, allowing a consumer to save for the future without making a significant commitment.
- Insurance– if consumers have their savings account with a member FDIC bank, their funds are insured up to the maximum limit allowed by law.
CONS:
- Low return– although consumers can earn interest, they offer relatively lower rates.
- Taxes– there are no tax benefits forputting money into a savings account. In fact, if a consumer accumulates a big enough balance, they will pay taxes on the interest they earn each year.
- Minimum balance– most accounts have a minimum balance which, if the account falls below, causes the account holder to incur charges.
- Insurance limitations– While the FDIC does insure a certain amount of an account holder’s money, there is a maximum which can leave some funds unprotected.
ACCC is a 501(c)3 organization that provides free credit counseling, bankruptcy counseling, and housing counseling to consumers nationwide in need of financial literacy education and money management. For more information, contact ACCC:
- For credit counseling, call 800-769-3571
- For bankruptcy counseling, call 866-826-6924
- For housing counseling, call 866-826-7180
- Or visit us online at http://www.ConsumerCredit.com
About American Consumer Credit Counseling
American Consumer Credit Counseling (ACCC) is a nonprofit credit counseling 501(c)(3) organization dedicated to empowering consumers to achieve financial management throughcredit counseling, debt management, bankruptcy counseling, housing counseling, student loan counseling and financial education concerningdebt solutions. To help consumers reach their goal of debt relief, ACCC provides a range of free consumer personal finance resources on a variety of topics including budgeting, credit and debt management,student loan assistance, youth and money, homeownership, identity theft, senior living, and retirement. Consumers can use ACCC’s worksheets, videos, calculators, and blog articles to make the best possible decisions regarding their financial future. ACCC holds an A+ rating with the Better Business Bureau and is a member of the National Foundation for Credit Counseling® (NFCC®). For more information or to access free financial education resources, log on to ConsumerCredit.com or visithttps://www.consumercredit.com/debt-resources-tools/
FAQs
Checking accounts are better for regular transactions such as purchases, bill payments and ATM withdrawals. They typically earn less interest — or none. Savings accounts are better for storing money. Your funds typically earn more interest.
What are the pros and cons of a checking account? ›
The primary benefit of checking accounts is the ability to store money you intend on spending, either through debit card transactions, checks, or cash withdrawals. However, the downside is they typically don't pay interest.
Which is better checking or savings account? ›
If you're just looking to pay for everyday expenses, a checking account is the way to go. If you're focusing on growing your money, a savings account is a better fit. Regardless of the account type you choose, make sure you pick one suited to your financial needs and goals.
What are the pros and cons of a savings account? ›
Savings Account: Pros & Cons
Pros | Cons |
---|
High interest earnings will grow your money exponentially over time. | Limited to certain types and amounts of withdrawals and transfers. |
You can withdraw at any time during your bank's business hours. | May require a minimum balance to avoid paying fees. |
2 more rows
What is one downside of using a savings account instead of a checking account? ›
With savings accounts, funds are less accessible, since these accounts are made to store money for financial goals. Checks can't be written against them, and you're generally limited to six free withdrawals or transfers a month from the account.
What is a checking account pros? ›
Easy access: Checking accounts let you access your money in a number of ways. You can typically spend or withdraw money by visiting a bank, using your debit card at an ATM, writing a check or making an online transfer.
What are the benefits of a savings account? ›
It allows individuals to deposit and store their money while earning a certain rate of interest on the deposited amount. The primary objective of a savings account is to encourage individuals to save money over some time, providing them with a safe and accessible place to keep their funds.
What is a disadvantage of a checking account? ›
Disadvantages of a Checking Account
Little to no interest: These accounts are for everyday spending, not for generating interest. Fees: People without direct deposit who cannot meet the minimum required balance will have to pay monthly service fees.
What are 4 differences between a savings account and a checking account? ›
Typically, savings accounts offer much higher APYs than checking accounts. Lowers spending temptation. Unlike checking accounts, savings accounts don't offer linked debit cards, unlimited withdrawals, or checks so it's not as easy to access cash in a pinch. Overdraft protection.
Is a checking or savings account safer? ›
Checking accounts offer a safer alternative to carrying large amounts of cash; banks provide security measures such as fraud monitoring, encryption and account verification to protect your funds.
Advantages and Disadvantages of Savings Account
- Advantages.
- Earn Interest. A savings account helps you earn interest on the deposited amount. ...
- Safest Investment Option. ...
- Minimum Investment Amount. ...
- Disadvantages.
- Interest Rates Can Change. ...
- Easy Access. ...
- Minimum Balance Requirement.
What are 3 disadvantages of saving? ›
The disadvantages of using personal savings:
- You're limited to what you can afford: your savings may only get you so far.
- It's risky to spend all your savings: you might need your savings for a personal emergency.
- Your responsibility for success: having more people behind your business could lead to more success.
What are the risks of a checking account? ›
Identity Theft and Fraud Risk: While banks implement security measures, checking accounts are still susceptible to identity theft and fraud.
What are the risks of savings accounts? ›
The interest rate on savings generally is lower compared with investments. While safe, savings are not risk-free: the risk is that the low interest rate you receive will not keep pace with inflation. For example, with inflation, a candy bar that costs a dollar today could cost two dollars ten years from now.
What are the disadvantages of a checking account? ›
Fees – many checking accounts come with additional costs such as maintenance fees, ATM withdrawal fees and transaction fees. Overdraft fees – overdraft fees, when the balance goes below zero, are determined by each individual bank, making them difficult to understand and often very expensive.
What are three disadvantages of a checking account? ›
Pros and cons of checking accounts
However, you should be aware of the different fees such as overdraft fees, minimum balance requirements, monthly maintenance fees, and ATM fees, which could end up costing you money.
What are the risks of having a checking account? ›
You may run the risk of incurring overdraft or other fees if you're not tracking each account closely. Monthly maintenance fees can easily add up for multiple checking accounts. It may be difficult to meet minimum balance requirements for multiple accounts if you don't typically keep a lot of money in checking.
What are three benefits of having a checking account? ›
What is the advantage of having a checking account?
- There are many advantages of having a checking account. Safety. No need to carry cash. ...
- Your bank can provide proof of payment. Build your credit. A checking account can help you establish and build your credit score. ...
- Convenience. Access your funds without carrying cash.