Checking & Savings Accounts Explained in 3 Minutes
Summary
TLDRIn this video, Sarah, an 18-year-old about to get her first job, learns the difference between checking and savings accounts. Checking accounts offer easy access to funds for daily transactions like bill payments and ATM withdrawals but can come with fees. Savings accounts, on the other hand, are designed to help with long-term savings and come with limits on withdrawals, but often offer interest on deposits. The video emphasizes how both types of accounts serve different purposes and can complement each other for managing everyday finances and building savings.
Takeaways
- ๐ Checking accounts are designed for easy access to your money and are commonly used for daily transactions like writing checks, making purchases, and ATM withdrawals.
- ๐ Checking accounts often come with features like direct deposit, bill pay, and account-to-account transfers.
- ๐ Some checking accounts may have fees, including maintenance fees, minimum balance fees, and overdraft fees.
- ๐ A savings account is intended for saving money and typically offers interest on deposited funds.
- ๐ Savings accounts have limitations on the number of withdrawals and transfers you can make each month, with a maximum of 6 convenient transactions allowed by federal law.
- ๐ Savings accounts usually do not come with debit cards, making it harder to access the money frequently and promoting saving.
- ๐ Interest rates on savings accounts are generally low, but some specialty accounts like Certificates of Deposit and Money Market Accounts offer higher rates.
- ๐ Online-only savings accounts may offer higher interest rates due to lower operating costs for the bank.
- ๐ Savings accounts are protected by insurance, guaranteeing up to $250,000 of your money, unlike the stock market where investments are not insured.
- ๐ Both checking and savings accounts serve different purposes: checking for spending and savings for future needs, with many people using both accounts.
- ๐ It's important to make informed decisions about both spending and saving to ensure financial stability and long-term wealth building.
Q & A
What is the primary purpose of a checking account?
-The primary purpose of a checking account is to allow easy access to money for day-to-day transactions, including writing checks, using a debit card, and withdrawing cash from ATMs.
What are some common features of a checking account?
-Common features of a checking account include personal checks, a debit card, direct deposit abilities, online bill pay, and account-to-account transfers.
What are the potential fees associated with checking accounts?
-Some checking accounts may charge fees such as maintenance fees, fees for not maintaining a minimum balance, and overdraft fees.
What are the benefits of a savings account?
-Savings accounts are designed to help people save money by offering interest on deposited funds. They also typically come with fewer fees and fewer opportunities to make withdrawals, which encourages saving.
What are the limits on withdrawals from a savings account?
-Federal law limits savings accounts to six convenient withdrawals per month, including account-to-account transfers, ATM withdrawals, and bill payments.
Why donโt savings accounts typically come with debit cards?
-Savings accounts generally do not come with debit cards to reduce the temptation of frequently withdrawing money and to help people focus on saving for long-term goals.
How does the interest rate on savings accounts work?
-Interest rates on savings accounts are typically low, but some specialty accounts, like Certificates of Deposit or Money Market Accounts, offer higher rates for meeting specific savings goals or leaving funds in the account for a longer period.
What is the advantage of using both a checking and a savings account?
-Using both accounts allows individuals to manage their everyday finances with the checking account, while also saving money for the future in a savings account, often with the added benefit of earning interest.
What protections do savings accounts offer that investment accounts donโt?
-Savings accounts are federally insured, meaning up to $250,000 of your money is protected. This guarantee is not available in the stock market or other investment accounts.
Why might an online-only savings account offer higher interest rates?
-Online-only savings accounts often offer higher interest rates because online banks have lower operational costs compared to traditional brick-and-mortar banks.
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