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Let's say I'm opening a new checking or savings account, assuming:

  • I already have another checking account
  • All accounts offer the same interest rates

Why would I ever choose to open a savings account?

I know that savings accounts are limited in terms of the number of transfers you can do, so that's one reason to prefer a checking account. But why would I prefer a savings account?

(Note: I'm just asking about the general case. Clearly, if one of them offers a $100 bonus and the other doesn't, then I would take the first one. Obviously, that completely misses the point of the question, so assume there are no special circumstances surrounding them.)

  • I dunno what it's like over in america but here in old Blighty high interest current accounts nearly always have strings attatched that mean you can't simply use them as a high interest savings account. – Peter Green Sep 27 '16 at 1:18
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    I keep a passbook savings account, without taking the bank's offers to change it to an electronic statement account, just because I think the added hassle of having to take the book to the bank, during business hours to make a withdrawal reminds me not to use it... – Adam D. Ruppe Sep 27 '16 at 2:30
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this is purely psychological. most people are absolutely terrible at keeping track of their finances. to the point where they will use multiple separate accounts for different types of spending or savings goals. when the average person tells the banker they want an account for the money they are saving, they get handed a "savings account" and don't bother to question how it is different from a checking account.

6

If your checking account has a card associated with it, then keeping funds in savings reduces the risk that some kind of fraud will wipe you out.

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    ...only if the savings account doesn't have one. Which seems to typically occur only when you're opening a savings account at an institution where you already have a checking account. – Mehrdad Sep 26 '16 at 15:57
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    Don't know how common this is, but my bank lets me easily select what accounts are linked to my card. Nothing stops me having an account on no card, or both the cheque and savings buttons pointing at savings accounts. – Someone Somewhere Sep 27 '16 at 6:50
  • I think both your accounts will be automatically linked to your bank card just because people don't seem to open an account with the explicit purpose of it not being linked to the card. – Nelson Sep 27 '16 at 10:34
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Here are some typical differences between savings and checking accounts:

  1. The savings interest rate may be slightly higher. (Obviously not a factor in your case.)
  2. The savings may have limitations on the number of transactions that can occur per month. (This may be a positive or negative for you depending on your needs.)
  3. Savings may have lower fees, or easier requirements to avoid fees.
  4. Savings accounts may have a deposit-only option, whereas checking likely does not.
  5. Psychological effect of putting money in a "savings" account.

Depending on your banks offerings and your personal goals, you would have to decide which factors matter to you. It's certainly possible that you may conclude there is no difference in your case.

3

If one has established a liquid emergency fund of 3 to 6 months income as suggested in several places here as well as being recommended by many financial planners then a savings account is a great place to keep that money.

All things being equal between the savings and checking account the limited transfers should be a non issue since ideally you won't be using that money and if you need to in an emergency you could move a whole months worth of expenses to checking in one transfer. The savings account gives you a place to keep the emergency fund segregated from your normal funds. Out of sight, out of mind as it were.

A savings account also gives you a place to stash funds intended for short term goals away from normal use funds. One such example I can use is that I am purchasing several plane tickets for various family members to come visit for Christmas. I have those funds set aside in a savings account so they don't interfere with my budgeting of my normal living expenses.

While these are just examples and your situation may vary they are both examples of where a savings account would be useful even if it is identical to a checking account.

Edit: using other types of accounts can also accomplish the same thing. Since we are using the assumption that the checking and savings accounts are identical the benefit of using a savings account is that it is usually inherently linked to the associated checking account without any additional effort on the part of the account holder. Any other account type would require additional effort, however minor, on the part of the account holder to link them in such a way that would make transfers between accounts as easy as possible.

  • I like this answer. It's easier to save when the money is not easily accessible, and it interferes less with the day-to-day transactions associated with a checking account. Also, I use automatic transfers on payday from my checking to savings so it's like the money is already gone and I'm not tempted to spend it once it's already been transferred to savings. – glassy Sep 26 '16 at 14:10
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    This is a good argument for having two accounts. I don't think it sets out any of the reasons why it would be preferable for the second one to be a savings account as opposed to another checking account. – Steve Jessop Sep 26 '16 at 14:36
  • @Steve Jessop in my experience the checking and associated savings accounts are inherently linked making transfers between them easier with most banks or credit unions. There is no reason you can't do exactly the same thing with multiple checking accounts and link them or a money market account with a brokerage or other options. Any of the options could be set up to do the same thing, many savings accounts are set up that way initially with no extra effort required when they are a part of the same account as the checking. If all else is equal as the OP suggests why not use the easier option. – homer150mw Sep 26 '16 at 15:28
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    In your answer are you arguing for why I should have a second account for the purpose of storing my savings, or are you arguing for why such an account should be a savings account? You seem to be doing the former whereas, as @SteveJessop said, the entire point of my question is to ask about the latter... – Mehrdad Sep 26 '16 at 15:50
  • @Mehrdad please see the edits made that hopefully provide some clarity – homer150mw Sep 26 '16 at 16:33
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Why would I ever choose to open a savings account?

This is slightly broad and opinion based. If the interest rates are same and other aspects are same [or same to you ... for example savings account allows say 6 debits per month and you only need 4, then its same].

Unless one compares the specifics one can't decide. A checking account may have fees, at times waived if there is direct deposit set-up. It maybe more easy to get phone banking or other aspects.

Quite a few items were initially possible with only checking account, get a check book, get a debit card [not just ATM card], etc. These days there are multiple flavours of products that bank is lunching which blur out the lines, hence traditional comparison will not do justice.

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    Hm, so is there nothing else like the Federal Reserve's 6 transaction limit that would apply to most/all checking or savings accounts? Is that the only thing that universally distinguishes the two from a consumer standpoint? – Mehrdad Sep 26 '16 at 10:30
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    @Mehrdad Note that (at least according to Wikipedia), "Regulation D does not emplace the six-time transfer limit on outbound savings or money market account transactions initiated in person, via messenger or mail; over-the-counter (OTC) withdrawals and transfers, ATM withdrawals and transfers, or installment loan repayments." If that's true, then the differences for a "casual" user of a checking account vs. a savings account is even smaller. – Joshua Taylor Sep 26 '16 at 14:02
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    @JoshuaTaylor: Huh, I didn't know "Regulation D" was the term to look up. Thanks for the pointer & info! – Mehrdad Sep 26 '16 at 15:53
  • @JoshuaTaylor It does apply to transfers initiated online through a bank's web site or mobile banking solution. So it can pretty easily bite casual users who don't understand it. – David Schwartz Sep 26 '16 at 17:46
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I think the issue here is you're starting with a criteria that doesn't actually exist in reality. A very small amount of research will uncover a plethora of options for savings accounts that pay far more interest than your basic checking account and don't require you to spend on the balance to earn the interest.

The point of saving is to have a pot of money that you can dip in to when you need it, or when you're ready to spend it for it's intended purpose. That pot of money is not supposed to experience a lot of transactions. It shouldn't be commingled with funds that come and go on a daily basis. It doesn't make sense to have checks or a debit card attached to your savings account, because you shouldn't need access to that money that way; not to mention that those two things open the door to fraud on the money that's supposed to be there for you when you need it.

Could you put your savings funds in to a checking account, sure. If we lived in a world where savings accounts that don't force you to jump through hoops to avoid fees didn't pay 10x more interest than interest bearing checking accounts that have similar ease of administration, more people may choose to house savings funds in checking accounts; but that's not the world we live in.

Thanks to the back and forth in the comments below I'm now more certain of my position that if you want a high yielding checking account you'll have pay fees or initiate a certain number of debit card transactions, or both. No one wants fees, and you shouldn't be spending on your savings in order to earn interest on the balance. It is very easy to juice your savings account to the best rates available.

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    "A very small amount of research will uncover a plethora of options for savings accounts that pay far more interest than your basic checking account." The highest interest rates you can find, whether for checking or savings accounts, are around 1% right now. We don't live in a world where savings accounts pay 10x more interest than checking accounts right now. They both are typically around 0.1% and the best of each top out at around 1%. – David Schwartz Sep 26 '16 at 17:49
  • @DavidSchwartz 1% is 10x more than 0.1%. And that is far more interest than your basic checking account. Just because it isn't a lot of interest, doesn't negate that fact that it's a lot more than the alternative. – quid Sep 26 '16 at 18:16
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    Sure, but both checkings and savings accounts are typically around 0.1% and top out at around 1%. There's nothing even remotely close to a 10x difference between the two account types unless you carefully pick the very, very best of one type and a run-of-the-mill of the other type, which you can do either way if you want to. Thus the interest rate will not be a consideration when choosing between checking and savings accounts -- they're both available with the same range of interest rates. – David Schwartz Sep 26 '16 at 18:17
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    Actually, 1% savings accounts are extremely rare too. The very, very best rate I currently know of is 1.05% and only a few banks offer 1%. Getting anywhere near 1% is equally difficult for both checking and savings accounts right now. And the typical ones are around 0.1% in both cases. Seriously, have you looked in the past year? They are the same now. – David Schwartz Sep 26 '16 at 18:34
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    @quid: There's a decent number of national 1%+ checking checking accounts if you just Google, e.g. see here. – Mehrdad Sep 26 '16 at 18:56
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It would be incredibly unusual for the same institution to offer checking and savings accounts with exactly the same features/benefits (including interest, etc). The reason is that (in the USA, anyways) the Fed makes banks keep a certain percentage of their total assets (called the reserve requirement) "in house." Checking account deposits cannot be re-loaned 100%--some of the money you put in your checking account must be held by the bank in its vaults. Savings accounts are not limited in this way.

So logic dictates that if depositing into one type of account is better for the bank than the other (ie, they can use more of the money to make money), they will reward people for using the one that is more beneficial to their bottom line.

I'm recalling this from college finance 101, so I may be slightly mis-remembering things, but I'm 99.99% sure that this is the primary reason you see checking accounts with lower interest rates--banks would prefer you to use savings accounts, and set up incentives so that you will.

Sorry, I know this doesn't really answer your question, but I think it may help you understand your options a little better (I hope!)

  • +1 forgot to upvote this but it's good side information! Needs more upvotes. – Mehrdad Jan 3 '17 at 4:17

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