Deciding between a checking or savings account is crucial for managing your finances. Learn their differences and benefits in this guide.
When it comes to managing your money, one of the fundamental decisions you’ll need to make is whether to open a checking account or a savings account. These two types of bank accounts serve different purposes and come with their own set of features, benefits, and limitations.
In this article, we will explore the main differences between a checking account and a savings account, as well as the pros and cons of using each. We will also discuss what is required to open either bank account type and identify banks in Australia that offer high-interest savings accounts.
Understanding Checking and Savings Accounts
Checking Account
A checking account, also known as a transaction account or current account, is designed for daily financial transactions. It is primarily used for managing day-to-day expenses, such as paying bills, making purchases, and withdrawing cash. Here are the key features of a checking account.
Pros
- Accessibility. Checking accounts provide convenient access to your funds, enabling you to write checks, make purchases with a debit card, or withdraw cash from ATMs.
- No Limit on Transactions. Checking accounts typically have no limits on the number of transactions you can make in a month.
- Overdraft Protection. Some checking accounts offer overdraft protection, which can prevent declined transactions if your balance falls below zero.
- Convenience. You can set up direct deposits, link your checking account to online payment services, and receive your salary or income in this account.
Cons
- Low Interest Rates. Checking accounts usually offer very low or no interest on your account balance. They are not designed for growing your savings.
- No Incentive to Save. Since checking accounts are meant for transactions, they do not encourage saving and may induce more spending.
Savings Account
A savings account, as the name suggests, is designed for saving and growing your money. It is a place to store funds for future goals, emergencies, or investment. Here’s what you can find in a savings account.
Pros
- Higher Interest Rates. Generally, savings accounts offer higher interest rates in comparison to checking accounts. This allows your money to grow over time.
- Safety and Security. Savings accounts are generally insured by the government, providing added security for your funds. The federal government’s Financial Claims Scheme has protection for depositors for up to $250,000 per authorised deposit-taking institution (regardless of its a bank, credit union, or building society).
- Limited Access. Savings accounts often have restrictions on the number of withdrawals or transfers you can make in a month. This encourages saving and reduces impulsive spending.
- No Risk of Overdraft. Unlike checking accounts, savings accounts do not come with the risk of overdrawing your balance.
Cons
- Limited Accessibility. While you can access your money when needed, there may be restrictions on the number of withdrawals or transfers allowed each month.
- May Require Minimum Balance. Certain savings accounts may necessitate a minimum balance to circumvent monthly maintenance fees.
Opening a Checking or Savings Account
Opening a checking or savings account in Australia is a straightforward process, and the requirements are relatively similar. Here are the general steps:
Choose a Bank
Study different banks to find the one most suitable for your needs or financial goals. Consider factors such as account fees, interest rates, and the availability of branch locations and ATMs.
Gather Necessary Documents
Your chosen bank will require submitting the following as part of an application packet:
- Identity documentation (e.g., passport, driver’s licence)
- Proof of address (e.g., utility bills, rental agreement)
- TFN or exemption code
- Employment or income details (for some accounts)
- Any initial deposit required by the bank
Visit a Branch or Apply Online
You can visit a local branch of the chosen bank to open an account in person. Alternatively, many banks offer online applications. Check the authenticity of the bank website (as some scams are based on creating near-perfect dummy sites), and prepare digital copies of the above documents. Most importantly, ensure that you submit the application over a secure internet connection.
Choose the Type of Account
Specify whether you want to open a checking or savings account. Some banks may also offer combined accounts that have features of both, and others have specific types of either account. Take note that some account features may even be accessible only through the bank’s official app, not through logging on to the bank website itself.
Deposit Funds
If required, make an initial deposit into your new account. Each bank will have their minimum daily balance.
Receive Account Details
After successfully opening your account, the bank will provide you with account details, including your account number and associated banking materials, such as a debit card and cheque book (for checking accounts). Secure those account details in a hidden location and if you have the official banking app, make sure only YOU will have the account details.
High-Interest Savings Accounts in Australia
If you’re interested in a savings account that offers a high-interest rate to help your money grow, here are some Australian banks known for competitive interest rates on savings accounts, as noted by the team at Choice AU as of October 2023.
ANZ Bank
ANZ Bank’s ANZ Plus Save account offers 4.65 per cent interest on balances reaching $250k but can only be accessed via the ANZ Plus app. The Progress Saver offers 4.25 per cent, but you cannot withdraw at any given month without putting in at least $10 per transaction.
ME Bank
ME Bank is known for offering higher-than-average interest rates on its savings accounts. For example it’s HomeME account, accessible to the ME GO app, offers 5.65 per cent interest on balances up to $100k, but to land that requires constant growing balances every month and you must deposit at least $2k into a linked SpendME account.
Macquarie Bank
Macquarie’s regular savings account initially offers 5.40per cent interest for the first four months of your account, but goes down to 4.50 per cent interest – for balances up to $1,000,000. However, you must have a Macquarie transaction account. The Cash Management Accelerator Account, meanwhile, can give 4.50 per cent interest, on balances up to $2m provided you have a Macquarie cash management account.
It’s important to keep in mind that interest rates on savings accounts can change, so it’s a good practice to regularly review the rates and terms offered by different banks.
Conclusion
Choosing between a checking account and a savings account depends on your financial goals and how you intend to use the account. While checking accounts are ideal for daily transactions and easy access to funds, savings accounts offer the advantage of higher interest rates and encouraging savings. Both types of accounts have their pros and cons, and the decision should align with your financial needs.
DISCLAIMER: This article is for informational purposes only and is not meant to be considered official financial advice. QUICKLE does not endorse any banks mentioned. Please consult a financial advisor.
