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What's the Difference Between a Current and Savings Account?
Are you interested in opening an account with a financial institution? If so, you may be trying to figure out which one will best suit your needs and fit into your budget. Current and savings accounts are similar in that they both offer relatively low interest rates, but there are some important differences between the two that could affect how you use your account.
The most notable difference between current and savings accounts lies in the way that you can access the money in each type of account. Because of this, it's important to understand which type of account will work best for you before opening one with any financial institution.
Current Accounts VS Savings Account
A current account is used for day-to-day expenses, while a savings account offers higher interest rates and is used to build up funds over time.
A current account can be opened with any amount of money, but some banks may charge fees or require high minimum balances to avoid those charges. That being said, check with your bank to see if they offer interest rates on your deposits.
A savings account requires you to deposit at least £/$10 in order to open one; however, there are no monthly service fees or minimum balance requirements as long as the balance doesn't fall below £/$100. It is important that you only withdraw what you need from your saving account so that it grows through compound interest over time.
Current Account Features
Different banks offer different features with their current accounts. One thing to consider is access. If you want to get in touch with your bank frequently, you may be better off with an account that allows you to go into branches and talk to people face-to-face.
Other features may include interest rates, overdrafts, ATM access, or physical checks.
Current accounts can also differ in their costs - some charge monthly maintenance fees whereas others waive these fees if certain conditions are met like having direct deposit.
How it Works
A current account is an everyday type of current account. You can use it to deposit checks, write checks, or withdraw money to pay for expenses. It does not earn interest.
Money should be in this type of account for a short period of time only and any extra money should be deposited into your savings account as soon as possible.
A savings account earns interest on your balance, which means that you can make more from your money by depositing it into this type of an account and letting it sit there for longer periods of time.
The more that you have in your savings accounts the higher the interest rate will be applied on that money too!
Interest Rate & Minimum Balance Requirements
A current account is considered an active account, which means there is no requirement to maintain the balance at all times.
Current accounts typically offer less interest rates than savings accounts, so it can be unattractive to keep your extra money in one of these types of accounts.
Savings accounts, on the other hand, are considered inactive accounts because you need to adhere to strict requirements as far as maintaining that balance. Savings accounts typically earn more interest.
If you're looking for a more hands-off type of account for your excess funds, then this would be best suited for your needs.
Savings Account Features
Savings accounts are designed to earn you money on your money with interest, which is where they get their name. With a savings account, you need to put in money at the beginning to earn any interest.
Plus, some banks will automatically pay you more interest earnings if you top up your account each month, this is known as a regular saver.
Common Questions Asked about Current vs. Savings accounts
A current account is typically used for transactions involving everyday bills and must be kept open at all times to pay your direct debits, whereas a savings account allows you to deposit money but does not allow for too many withdrawals, unless it is an easy access account.
Both types of account are protected by the FCA and FSCS in case of default by the bank.