Opening the Right Kind of Bank Account: Chequing vs. Savings, and Fees.

by Chris W. Rea on

This is the second post in the getting started with your finances series.

Opening a bank account sounds boring and odds are you already have one. Why mention it? Don’t most bank accounts work more or less the same way? You deposit money, withdraw money, pay bills, write cheques, and once in a while if you’re lucky the bank will reward you interest as compensation for lending them money. Right? As a generalization, perhaps. But in real life, bank accounts can be complex products with specific features, intended uses, and fees that you should make yourself aware of.

The two main kinds of personal bank account you will come across are the chequing account and the savings account. What’s the major difference?

  • The chequing account is geared towards frequent transactions such as ATM cash withdrawals, bill payments, and writing cheques. Little or no interest is offered on the balance.
  • The savings account is primarily an interest-bearing account designed for accumulation of cash savings and interest. Fees quickly add up for non-deposit transactions.

The bank account I suggest you start with is a chequing account. You will need an account into which you deposit pay, and from where you can withdraw spending money, make regular bill payments, and write cheques. (These days you are more likely to pay bills through your bank’s online banking service, but cheques are still useful now and then.) Once you add up the number of expected withdrawals, bill payments, and cheques, it’s a handful of transactions per month. The potential fees add up.

The bank fees issue is important to understand. You shouldn’t have to pay much for the right to have a bank account. Too many people chase interest rates, not realizing that fees are the more important consideration. Unless you have cash savings in excess of, say, $15,000, you’re more likely to be impacted by potential fees on transactions than benefit from interest on your savings.

When I was a teen, I had opened a “youth” account with one of the major banks. The youth account had no monthly fee, and a good number of free transactions until age 18. I was ignorant, and it was perfect for a while. I used the account to deposit earnings from part-time jobs, gift money, and so on. I often neglected to get my passbook’s account history updated, and as a result I did not notice until well after age 19 that my balance had been getting eroded by the monthly fees incurred since age 18!

I was fortunate to learn my lesson about fees early, and have since sought to avoid fees on financial products. I also pay closer attention to my balance and monthly transactions.

When you go to open a new bank account, look carefully at your available chequing account plan options, the number and type of transactions included in each, and the monthly fees.

Banks will often waive the monthly account fee if you maintain a minimum balance. Consider a plan where you will have an adequate number of included transactions per month and can maintain the minimum balance to avoid the monthly fee.

Later, when you find you are consistently exceeding the minimum balance by a significant amount, you should consider opening a supplemental savings or other investment account to realize a better return on your excess funds.

Additional Resources

For more advice on specific strategies and available chequing accounts, here are some useful resources:

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