Looking to open a new bank account but not sure if you should opt for a savings or chequing account? Are you struggling to determine the difference between the two?

A chequing account and a savings account are both important to have in your money management toolbox as they each serve a unique purpose.

Read on to learn more about each account and some of their key features, so you can make an informed decision about which one is right for you.

Chequing account

The purpose of a chequing account is to provide a place to store your daily spending money. A chequing account is often where people deposit their paycheque and it allows you to make frequent withdrawals and deposits.

A chequing account is typically used to hold the money that will be used to pay bills, make regular purchases, and ABM transactions.

A chequing account pays little to no interest and, as a result, it's not a great place to store your money for an extended period of time.

When it comes to accessing your money, a chequing account typically comes with a debit card and a cheque book.

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Savings account

The purpose of a savings account is to provide a safe place to store your money for the longer term while also earning some interest.

A savings account is a great place to store money for an emergency fund or a short-term goal like saving for an upcoming trip or home improvements.

The overall benefit of a savings account is that you can earn interest and have your money remain easily accessible. Unlike other savings vehicles, like a tax-free savings account (TFSA), there are no limits to how much you can deposit into your savings account. However, the amount you should keep in a savings account will depend on your financial circumstances.

Debit transactions

When it comes to withdrawal limits, a chequing account will typically offer a higher number of withdrawals than a savings account, and many accounts even offer an unlimited number of withdrawals; although most accounts will still have daily and weekly maximum amounts without visiting a branch.

With a savings account, there are often limits attached to the number of withdrawals you can make. While you technically can withdraw money from your savings account at any time, if you exceed the number of withdrawals permitted by your bank, you will be charged a fee.

Monthly account fees

Many accounts will charge a monthly account fee. The amount you pay will depend on the type of account and the services offered.

When it comes to chequing accounts, most of them come with a monthly account fee that increases based on the number of transactions you want to perform.

Most basic savings accounts come without monthly account fees but often provide a more limited number of free transactions each month. If you want access to unlimited transactions or additional services, then you will likely have to pay for it.

If you want to avoid paying monthly account fees for your accounts, there are some things you can do.

Many banks will waive the monthly account fees if you're able to maintain a minimum daily closing balance. However, if your balance drops below the minimum required by your bank at any point in the month then you will be charged the monthly account fee for your account, for that month.

You might also qualify for a multi-product discount if you open more than one account at your bank or financial institution. 

Interest rates

If you want to earn interest on your money, a savings account is probably your best choice. While some chequing accounts do pay interest, the rates are typically minimal.

A high-interest savings account (HISA) may be the way to go if you want to get the most bang for your buck. A HISA offers a higher interest rate than a regular savings account, helping you to reach your financial goals even faster.

A savings account is a great option for saving for shorter-term investment goals like an emergency fund, home renovation, or wedding. This is because you're able to earn interest while avoiding the risk associated with an investment account.

In order to begin earning interest, some banks require a minimum deposit. For instance, you might need to maintain a balance of $1,000.

Remember that when you do earn interest on your savings you will usually have to pay income tax on these earnings. Your bank or financial institution will send you a return of investment slip (T5) which shows how much investment income you earned over the year and that you will use when you file your annual income taxes.

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Is it better to have a chequing or savings account?

The answer for most people is that you'd probably benefit from having both accounts.

If you want an account that offers immediate access to your money and allows you to perform many transactions, then you should look for a chequing account.

If you're looking to save money over time for a particular goal and you want to earn interest, then a savings account is probably the right fit.

When it comes to choosing whether to get a chequing or savings account it doesn't need to be a question of one or the other. Each account serves a purpose, and both are important when it comes to managing your money.

When making your decision be aware of the pros and cons of each.

Pros of a chequing account include:

  • Easy access to your money using a debit card, cheques and ABMs

Cons of a chequing account include:

  • Likely monthly account fees
  • Minimal to no interest earnings

Pros of a savings account include:

  • Your money earns interest
  • Lower-risk account to save your money as compared to an investment account
  • It's still easy and convenient to access your money

Cons of savings account include:

  • Typically limits on the number of debit transactions you can make without incurring a fee
  •  Interest is likely lower than if you were to put money into an investment account

How much money should I keep in my chequing account?

There is no magic number when it comes to how much you should carry in your chequing account; the exact amount will depend on your personal budget and what you feel comfortable with.

However, as a rule of thumb, you should have enough to cover your bills and day to day expenses as well as a little bit extra for any unexpected charges that may come up. You want to avoid getting any non-sufficient fund (NSF) fees.

There are circumstances where you might want to keep more money in your chequing account. For instance, if your bank will waive the monthly account fees if you maintain a minimum balance. However, it's up to you to determine if this is the best place to store that money as you could earn more interest in a high-interest savings account.

How much money should I keep in my savings account?

How much you should keep in your savings account will depend on your specific financial goals.

If you're using your savings account to store your emergency fund, then a good rule of thumb is to ensure you have enough to cover three to six months of regular expenses.

Once you have enough in your emergency fund and any other short-term savings goals you can think about putting any additional money into an investment account. Because of inflation, your money will start to lose its value if you leave it sitting in a savings account.

When trying to determine if you should put your money in a savings account versus an investment account (like a TFSA) you can think about:

  • Timeline -- When do you need the money? If you'll need it in the next few months, a savings account is the way to go
  • Accessibility — How easily do you want to be able to access the money? It's generally easier to withdraw your money from a savings account versus a TFSA or other investment account.
  • Risk tolerance — How much are you willing to lose? A savings account is a very low risk while an investment account is subject to the ups and downs of the stock market.

The 1-2 punch

Both chequing and savings accounts are important tools when it comes to your overall money management. While a chequing account provides easy access to your money for daily spending, a savings account can help you to achieve your longer-term financial goals.

When used in combination, these accounts can offer a solid foundation for your personal finances.

Ready to get your finances on track for your future? Come in and speak to a Scotia advisor today