Adulting 101: The Difference Between a Checking Account and a Savings Account

(SPOT.ph) If your adult era happened during a time of mobile banking existence, chances are that you never needed a checking account. A savings account does the job, after all. But if you want more ways to handle your financial transactions, it's still nice to know the difference between a savings account and a checking account, as well as the pros and cons of having both (or either).

Checking Account vs Savings Account

For starters, a savings account is best for saving money (obviously) and a checking account (or current account) is recommended for spending money through checks—thus the name.

Opening an Account

Most people's first bank account is a savings account, especially since it's easy to open one. Banks with mobile apps like BPI, BDO, and Robinsons Bank even let you create a new account by just sending photos and IDs online. They also have a generally low initial deposit of just around P100 and a maintaining balance of a few thousand pesos.

Opening a checking account, on the other hand, requires you to visit a bank near you. This is also needed if you want a checkbook.

Service Charges and Spending Limits

Since the purpose of a savings account is to save money, it discourages you to make frequent withdrawals by charging an ATM service fee when done through another bank's machine. There's also a transaction limit per day and per single transaction, although mobile apps like BPI let you adjust this accordingly. Other banks also charge a penalty fee if your savings account has less than the maintaining balance for more than a month, encouraging you to keep your money within the minimum.

A checking account, on the other hand, is best used when you need post-dated checks for payments. This is often required for rental payments unless your landlord is tech-savvy and accepts proof of online deposit. Since it's a safe option for paying huge amounts, it's often used for personal loans, auto loans, and housing loans that also require post-dated checks.

But aside from checks, a checking account also comes with a debit card for withdrawals and payments. The card can be used for day-to-day expenses and other regular transactions like paying bills, especially since a checking account doesn't come with a spending limit.

Overdraft facility

A checking account has the benefit of an overdraft facility, which is an instrument that allows you to withdraw money from your bank account even if you have no money in it. This is useful for emergencies. This facility is not available in a savings account, which often needs you to not go under a maintaining balance.

Why do you need a checking account?

Different types of bank accounts have different advantages. Here are situations where you might need a checking account:

You need to keep track of your budget

If you want to be strict about it, you need separate accounts for savings and expenses. A checking account is best for the latter.

You have loans that need repayments in large amounts

Checking accounts don't have a transaction limit and, well, you have checks where you can safely write down many zeroes. Payments for car loans and home loans are too big to transfer via online banking or for carrying cash around. A check lets you do your repayments with security.

Your biller or landlord requires post-dated checks

A checking account lets you have a checkbook, which you may need for paying your rent. Plus, a check cannot be authorized unless it has your signature, which gives an added layer of safety.

You want to avoid additional service fees

A savings account often charges fees for withdrawals and even bill payments. This may just be a peso or P25, but in the long run, it can be a significant amount. Checking accounts have smaller to zero extra charges.

Is it better to keep my emergency money in a checking account or a savings account?

Both. Your emergency fund, which should be liquid, is best kept in a simple savings account connected to your checking account. Some banks let you do this, and even waive monthly maintenance fees if you do it in one bank.

Also read:
The SPOT.ph Guide to a Checking Account
Adulting 101: How to Open a Checking Account
GUIDE: Banks That Allow You to Open a Savings Account Online