When it comes to figuring out checking and savings accounts, and deciding on the right one for you, it can be a bit of a chore. There are a lot of factors to consider, and there is no single solution that can meet everyone’s needs. However, the ways you access and manage your money are undeniably crucial and not something you should settle on. For the purposes of this article, I recommend having at least one checking account and one high-yield savings account – potentially more if you find it necessary.
What’s The Difference Between Checking And Savings?
There are a lot of differences between checking and savings accounts, but at the core of it, it’s a matter of how you’re able to access money (and how often) as well as how much interest you’ll be earning on it. Checking is likely what you use for everyday needs – things like purchases and bills will usually go through a checking account. If you have a debit card, you probably got that by opening a checking account. Unfortunately, checking accounts usually earn little or no interest on your funds in it. On the other hand, savings accounts are better for storing larger amounts of money. You may have a limit on how much you can move in or out of the account, but you’ll usually end up earning a much higher interest rate.
Now, savings accounts are no replacement for investments. Savings accounts have great interest rates compared to checking accounts, but they still can’t keep up with a diversified investment portfolio. Even worse, the interest rates on savings accounts still won’t be enough to match inflation rates over the years. That being said, putting some money into a high-yield savings account can still be useful – particularly for emergency funds.
Not sure what to look for? When you’re opening new checking or savings accounts, the key things you need to keep an eye on are interest rates and fees. If there is a service fee on one of your accounts, you could end up losing a lot of money. For most banks, there are usually a list of ways to waive maintenance fees, so be sure that you can waive those fees before you make a final decision on a bank. As far as interest rates go, a high-yield savings account will probably be about .3-.6% APY. There used to be better deals, but as of writing this article many banks have lowered their interest rate in the past 6-12 months due to complications in the market from Covid.
Another thing worth noting is that interest rates at banks are rarely fixed. In other words, they can and will lower or increase their interest rates depending on whether they’re having difficulties or excelling (as I mentioned earlier, rates have been dropping a lot in the past 6-12 months). If you want to save extra money instead of putting it in the stock market (through a brokerage like M1 Finance), then you might want to check out CDs. Personally, I don’t think CD rates are good enough to warrant the current cons – I just use a savings account for a 6-month emergency fund and invest the rest of my income into things like stocks, index funds, and real estate.
On the brighter side of things, most banks are insured for up to $250,000 per depositor (check if your bank has FDIC insurance – they should have it). This means that if the bank fails, you wouldn’t lose the money you had with them, assuming it was less than $250,000.
Not All Banks Have Everything You May Need
At this point, you’re probably thinking about just having your checking and savings accounts at the same bank, to mitigate the headache. There is nothing wrong with that, and some banks offer great options on both types of accounts. However, you will likely be passing up some benefit that you may be able to get if you divided the accounts among two banks. If you are set on one bank (and there is nothing wrong with that), I’d recommend Axos for checking and savings. They offer some great services and will be able to meet the needs most people will have as far as these types of accounts go. Just doing it all at one bank will make managing your money a lot easier, and make transfers go through a lot faster (between these two accounts). Not all, but many banks also waive their monthly fees if you open both a checking and savings account with them.
There is one major caveat about doing it all at one bank. For checking accounts, people often want to go with a brick and mortar bank that has a location near them. This way you can visit the location if you need to, get in-person service, and have easier access to large withdrawals. In my experience the difference in interest rate between the checking accounts brick and mortar banks offer and the ones offered by online banks are usually negligible. For a lot of people, brick and mortar will always win the convenience factor when it comes to checking accounts. However, brick and mortar banks are rarely ever able to compete with the interest rates of online savings accounts. Personally, I have multiple checking accounts – brick and mortar as well as online – and one high-yield savings account.
Still not sure which bank to go with? Let me break down some of the options.
Ally Savings Account
Ally offers solid customer service, good interest rates, and a fairly nice online platform. Recently their savings account interest rates have dropped and they’re not the most competitive anymore, but they are still a good option – and they have a decent checking account too.
Axos Checking And Savings Acount
Axos has great accounts – for checking as well as savings. The best part is that they’ve stayed consistently strong, despite economics downturns. The checking account is great, and there are only two caveats. First, it isn’t a brick and mortar so there isn’t easy physical access to an Axos bank. Second, there are no maintenance fees but in order to get the highest interest rate (with their checking account), you need to do all of the following (each bullet point is a different tier, and each tier unlocks a higher interest rate):
- Receive monthly direct deposits totaling $1,000 or more
- Use your debit card for a total of 10 transactions per month – with a minimum of $3 per transaction
- Use your debit card an additional 5 more times for a total of 15+ transactions per month – with a mininimum of $3 per transaction
The savings account is a pretty standard high-yield option and boasts incredibly competitive interest rates. Additionally, they do have a very nice business checking account that I have personal experience with and was very happy using. Of course, different businesses have drastically different needs, so I can’t necessarily recommend that one without knowing the specifics of a case.
Regardless, Axos is easily one of the best online banks, and I recommend trying them out. It’s a pretty simple setup that you can do from your laptop or phone!
Brick & Mortar Banks
As I’ve said before, using a brick and mortar bank for your checking account can be a good idea if you like having that in-person access. I’m not going to recommend a specific one, because it just depends on what’s in your area, but I’d also check out your local credit unions too. If you are leaning towards opening a savings account with a local bank, double-check the rates you can get from online accounts – there is a huge difference.
Conclusion
If you want the best of both worlds, use a local bank for your checking account and use a high-yield savings account for the other (the best options are most likely online-only). If you want an-all-in-one solution, I recommend using Axos for both.
Think I missed something? Have a bank you’d like to recommend? Add it in the comments! For more content like this, and a free budgeting template and financial goals worksheet, be sure to sign up for the Bitter to Richer newsletter.
