When choosing between a chequing account and a savings account, it’s important to assess your personal requirements. Chequing accounts are generally intended for everyday financial transactions, while savings accounts serve the purpose of accumulating funds.
In most cases, individuals maintain both types of accounts; however, these accounts may not necessarily be held at the same financial institution. Some people opt for online banks for their savings accounts due to the higher interest rates offered. On the other hand, many prefer to consolidate all their accounts within a single bank for convenience.
As a customer, understanding the distinctions between checking and savings accounts is crucial in order to select the account type that best fits your needs.
What is a chequing account?
Unquestionably, a chequing account is among the most frequently used types of bank accounts. The majority of individuals have their salaries deposited directly into these accounts, which they utilize for routine financial activities such as covering bills and grocery shopping.
Chequing accounts are structured for customers to manage their daily finances, which is why they typically allow for numerous transactions. Additionally, they facilitate easy access to cash, whether through ATM withdrawals or at bank branches.
Having a chequing account grants you access to various types of transactions, including:
- Deposits – Cash and cheques
- Direct deposits – Payroll and governmental funds
- Cash withdrawals – ATM and in-branch
- One-time payments – Dining, fuel, bill payments, etc.
- Recurring pre-authorized payments – Mortgage, rent, utilities
- Transfers – Between accounts, banks, INTERAC e-Transfer
Conventional banks typically offer a variety of chequing account options, from basic accounts with low or no monthly fees that limit transaction amounts to premium accounts that allow unlimited transactions for a higher monthly fee, often exceeding $25.
What is a savings account?
A savings account shares similarities with a chequing account but is primarily intended for keeping funds aside. Banks incentivize consumers to maintain balances in these accounts by offering interest payments. However, these accounts usually impose restrictions on the number of transactions allowed within a month. While it’s technically feasible to utilize a savings account for everyday spending, the associated fees could negate any financial advantage.
While traditional banks do offer interest on savings accounts, the rates are often minimal. Some institutions even impose a minimum balance requirement that can be quite high before any interest is generated. Ultimately, using a traditional bank for a savings account may not be the wisest choice; instead, opting for an online bank can provide better high-interest savings options in Canada.
Since digital banks lack physical branches, they experience lower operational costs, allowing them to offer no monthly fees and attractive interest rates. Furthermore, customers benefit from unlimited transactions, and these high-interest savings accounts can usually be linked to a regular bank account for easy access to funds.
What are the differences between chequing vs. savings account?
When contrasting chequing accounts with savings accounts, the distinctions are quite clear. Chequing accounts are more suitable for daily spending, while savings accounts are designed for accumulating money. However, there are several key differences that you should be aware of.
Transactions
One of the most critical factors in differentiating between chequing and savings accounts is transaction frequency. Transactions encompass any type of withdrawal. It’s important to note that deposits (like payroll or ATM deposits) do not count against the transaction limits.
Chequing accounts provide flexibility, offering options with either limited or unlimited transactions. On the contrary, savings accounts usually limit the number of transactions. Exceeding the monthly limit may incur fees ranging from $1.50 to $2 for each additional transaction. Therefore, if frequent transactions are a priority, a chequing account is your best bet.
Monthly fees
Monthly fees for chequing accounts at traditional banks typically range from $10 to $30. However, certain accounts designed for students and seniors may waive these fees. In contrast, savings accounts usually do not have monthly fees but limit transactions.
Many banks provide discounts on chequing account fees if specific conditions, such as maintaining a minimum balance, are met. If you wish to avoid monthly fees altogether, a savings account is a suitable option, though it comes with limited access to funds. A more beneficial approach might be to utilize a high-interest savings account from an online bank, linking it to your regular chequing account to transfer funds as necessary.
Interest rates
In terms of interest rates, there is a stark contrast between chequing and savings accounts. Chequing accounts generally offer little to no interest, whereas savings accounts do provide some level of interest, although the rates may still be low, sometimes accompanied by minimum balance stipulations.
If you are seeking genuine interest earnings in Canada, high-interest savings accounts from online banks are an optimal choice. Although traditional banks may advertise savings accounts or high-interest savings options, you’ll likely find more competitive rates through online institutions.
Should I have a chequing or savings account?
Most individuals will typically possess both types of accounts. Given that chequing accounts accommodate a larger number of transactions, they are often used for day-to-day financial activities. In general, you should maintain only the amount needed to waive your monthly fees in your chequing account.
On the other hand, a savings account is essential for setting aside funds. This is beneficial for those who aim to save for short-term goals, such as a home down payment or an emergency fund. It’s crucial to acknowledge that traditional savings accounts are not the best option; opting for a high-interest savings account from an online provider is generally more advantageous.
It’s noteworthy that some individuals rely solely on online banks, capitalizing on the benefits of unlimited transactions and interest accrual. However, one downside is that few online banks offer debit cards, which may complicate accessing cash.
A practical strategy could involve maintaining a standard chequing account alongside an online high-interest savings account. Linking the two would allow you to transfer money as necessary, although keep in mind that moving funds from the online account to the chequing account may take a couple of days. To expedite the transfer, consider using an INTERAC e-Transfer.