Back to Basics: Checking VS Savings Accounts

Disclaimer: I am not a financial advisor. Nothing in this post should be used as financial advice. I am simply sharing my personal experience and what I have observed in regards to finance. Please contact a financial advisor if you are in need financial advice.

Let’s talk money! Unless you grew up with parents who were well versed in finances, it is likely that you have had to do a lot of learning on your own when it comes to money! Regardless of your introduction to finances, most of us are still learning how to organize, save, and spend our money efficiently. That is why we are creating a series called “Back to Basics”, where we dive not-so-deep into all of the different areas of finance in order to give you a generalized understanding of how your money works.

Checking and Savings Accounts

Most of you reading this right now likely have a checking and a savings account. So why are we talking about them? It is important to understand why you are keeping your money in certain places, so that you can reflect and understand how to improve your financial stance. Checking and savings account are the foundation of your financial journey. If you don’t know how your foundational bank accounts work, you won’t be able to make changes that better support your future self! So let’s dive in…

Checking Account

A checking account is generally the account that is used for taking money in and sending money out. This is typically the account that you get paid into, transfer to other accounts from, and if you have a debit card, the account that is charged when you are spending money. Additionally if you have a direct deposit set up through your work or to pay bills from, it is likely attached to this account.

Think of this account as the mail man who is responsible for receiving money and then delivering that money to other places. Generally speaking, this account is not where you want to be holding the majority of your money, but rather an intermediate stop that your money makes on its way to the final destination!

That being said, there is nothing wrong with keeping your money primarily in a checking account. You can go your whole life, simply having this one account! However, in order to make your money work for you it is more beneficial to keep your money elsewhere, as you will see throughout this series.

Savings Account

A savings account is exactly as it sounds, an account used to save money for the future. There are several different types of savings accounts that we will discuss at a later time, such as the HYSA (High Yield Savings Accounts), but for this post we will only be focusing on a basic savings account. Typically this is where you begin to start saving money for future expenses. A general target goal for this account is to have 3 to 6 months of living expenses, also known as your emergency fund. This account is also a great place to keep any money that you want to save for the future (vacations, doctor’s appts, new shoes, etc!).

The point of the savings account is to keep your money easily accessible while also providing that extra barrier that makes it a little more difficult to access when compared to a checking account. Going back to the mail man reference, it is the destination for the money, but can always be returned to the sender (easily transferred back to the checking account).

If you are just getting started with money and personal finance, this is a GREAT place to start building your wealth! The reason many people choose to only keep their emergency fund in their savings account is because they do not typically earn much interest (money that the banks gives you for letting them hold your money). We will go into more detail about earning interest and how to make your money work for you later on in this series, but for now just know that it is a great option to hold money that you want to keep.

How they work together

Generally when you open one of these accounts through a major bank, you will be given the opportunity to open the other. Both of these accounts are connected and go hand in hand. Although you can have a checking account without a savings account, you cannot have a savings account without a checking account. This is because you need the mail man (checking account) to deliver the mail (either to savings account or to pay for things). Just because you can open the checking account without the savings account, doesn’t mean you should! We want to reach our money goals, so just open the savings account too! Future you will be so proud!