Luisa Rollenhagen is a journalist and investor who writes about financial planning for Wealthsimple. She is a past winner of the David James Burrell Prize for journalistic achievement and her work has been published in GQ Magazine and BuzzFeed. Luisa earned her M.A. in Journalism at New York University and is now based in Berlin, Germany.
Isn’t a chequing account the same thing as a savings account, only you have more access to your money? Is one better than the other? Do you really need two accounts? What’s the point?
Chequing vs savings accounts
A chequing account is a “transactional” account or an account where the bank expects the account holder to make frequent transactions with the money deposited in that account. Transactions include depositing and withdrawing cash, using your debit card to pay for things, and having money electronically wired into your account.
There are chequing accounts available to students (usually with no fees attached), corporate accounts used by businesses, or joint accounts usually used by married couples.
Unless otherwise determined by the bank, chequing accounts usually have some type of fee associated with them. Fees can be charged when you use an ATM, or for using your debit card abroad or when you overdraw your account. Sometimes chequing accounts hit you with a combination of all those fees (boo).
A savings account, on the other hand, is not really meant for transactions. It's used as an “emergency” chequing account all the time, of course, but its purpose is to provide a safe place to store your money long-term.
Since the money in a savings account is used by banks to make loans to other people, the bank will pay you interest on your balance. Returns probably aren't going to be as high as those you’d receive if you were to start investing. But it's the stability of savings accounts that make them such a worthwhile financial tool. Any interest earned is a kind of bonus.
You might be wondering why you’d even bother with a savings account if you could just invest your money into a low-fee diversified portfolio. But a savings account is a foundation. It supports other types of investing allowing you to keep a certain amount of funds safe and sound, unaffected by the ups and downs of markets.
While the money in a savings account is harder to access that money in a chequing account, a savings account still has more liquidity than the money you invest. Plus you get (modest) returns without any of the risks associated with investing your money. Should you ever need money, like, now, it's there and can be withdrawn or transferred to your checking account without penalties.
Another option is a savings investment account, which generally offers a higher interest rate than traditional savings accounts. What does this mean for you? You'll likely get more bang for your buck. Financial institutions offering such a product generally afford to pay higher interest rates by either putting your money in multiple high-interest savings accounts or investing your money in investments typically seen as low risk. If you are looking for high interest and some level of safety, this is an option worth considering.
Pros & cons of a chequing and savings accounts
So to sum up, the differences between a checking and a saving account boil down to accessibility, fees, and interests.
Pros & cons of chequing account:
Pro: Offers high accessibility through debit cards, ATMs, checks, and mobile banking.
Con: Usually has fees.
Con: Also, the money you put in a chequing account will not accumulate interest and lends itself badly to saving since you’re always using your checking account for things like groceries, late-night impulse buys in Amazon and your Saturday night bar tab. So yeah, not the best account for trying to save up for a mortgage payment.
Pros & cons of a savings account:
Pro: Generally savings accounts have few to no fees (but check the fine print, some banks require you to have a minimum balance in your account or make frequent deposits)
Pro: Offers interest on your money (rates can vary wildly, so check)
Con: Isn’t designed for frequent withdrawals. Some banks will often limit the amount and frequency of the withdrawals you can make.
When to use a Savings Account over a Chequing Account
At the end of the day, it comes down to your financial goals and habits. As mentioned above, it’s best to think of a chequing account as an everyday kind of deal: you use it to pay your morning coffee, drinks with coworkers, IKEA runs, and everything else that makes up the tapestry of your daily life.
You should be using a savings account for something you’re aiming to pay (or pay off) within three years. Whether that be a vacation, a down payment on a house, or for paying taxes you know you’ll owe. A savings account is also a great place to put your emergency fund —money you’ll want to have readily on hand in case of job loss or any other unforeseen expenses. As a rule, you should have between three to six month’s worth of expenses saved up in your emergency fund.
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