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Checking vs. Savings Accounts: What’s the Difference?

What sets a checking account apart from a savings account? Here are the differences -- and what to look for when opening either one.

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If you’re comparing a checking account with a savings account in search of the one and only bank account to own, the reality is that there isn’t a clear winner between the two. You’ll need both for a solid personal finance plan. And in today’s high interest rate environment, there’s good news for you as you review different checking and savings options: You can make money while managing your money, thanks to competitive interest rates for savers. 

Read on to learn more about the differences between these two types of accounts.

Checking vs. savings: What’s the difference?

Checking accounts are designed for daily use -- from buying your morning coffee with your debit card, to accepting a Zelle payment from a friend when splitting a dinner check to paying your monthly bills. A checking account helps facilitate your everyday spending needs.

Savings accounts, on the other hand, are designed to grow and secure your money. Instead of spending from this account on a regular basis, you should aim to deposit more. 

Account typeCheckingSavings
Main useEveryday spending needsEmergency fund and short-term financial goals
Pays interestSome do, but it’s far less commonMany do, and in some cases, you will find high-yielding accounts
FeesVaries but often includes monthly maintenance, out-of-network ATM, overdraft and stop payment feesVaries but often includes monthly maintenance and excessive transaction fees
Minimum balanceVaries Varies
Transaction limitsNoneOften limited to six per statement cycle; then, subject to an excessive transaction fee

Checking account: For daily transactions

A checking account earned its name from the typical ability to write checks to pay for goods and services. While those pieces of paper are becoming less common, the function of the account remains the same: People use a checking account to cover their expenses. You can tap your debit card to make payments, and the amount will be automatically deducted from your balance. 

Additionally, checking accounts allow you to easily accept payments via online networks such as Zelle. Your employer can also submit direct deposits into your account via the ACH network.

While they all serve the same basic spending needs, there are quite a few different types of checking accounts with different benefits and costs.

Pros

  • Designed for everyday transactions.

  • Your cash is insured for up to $250,000 at banks and credit unions that are federally insured by the Federal Deposit Insurance Corporation and National Credit Union Administration, respectively.

Cons

  • They often charge monthly and overdraft fees.

  • Many checking accounts carry minimum balance requirements.

  • They have nominal interest rates.

Savings account: A place to stash your cash

Savings accounts are not designed for regular spending. Instead, these accounts are meant to help you grow your money for your needs in the future. For example, you might use a savings account to develop an emergency fund that can act as a safety cushion if you lose your job or need to pay for a family emergency. Additionally, savings accounts are a good place to build cash for short-term goals such as a down payment on a new house or a family vacation next year. 

The good news about savings accounts is that you don’t have to do all the work. There are high-yield savings accounts that pay generous annual percentage yields, or APYs, that help you grow your balance. If, for example, you deposit $10,000 in a savings account with a 5% APY, you’ll earn $500 over the next year.

Pros

  • They’re FDIC- or NCUA-insured at federally insured banks and credit unions.

  • Some savings accounts pay competitive interest rates.

  • A savings accounts can help instill good money management behavior.

Cons

  • Many savings accounts carry fees and minimum balance requirements.

  • There’s the potential for excessive transaction fees.

What to look for when selecting a checking and savings account

Checking and savings accounts aren’t created equally. As you compare different options for your cash, be sure to think about these key questions.

Checking accounts

Is there a monthly fee, and what can you do to get it waived? The first rule of a good checking account is simple: Make sure you don’t have to pay to use your money. While many banks charge a monthly maintenance fee for their checking accounts, there are often simple ways to get that fee waived, such as through monthly direct deposit or hitting a minimum balance. 

Do you deal with cash on a regular basis? If you’re constantly depositing and withdrawing cash, pay close attention to the bank’s ATM network and any ability to reimburse out-of-network ATM fees. If you don’t, though, some of the best online banks may be a great fit.

Is there a bonus offer? A lot of banks will dangle a $200 bonus in front of you for opening a new checking account. It’s nice to pocket some extra cash, but don’t let that be the deciding factor. You’ll use this account for a long time, so it’s more important to think about monthly fees and overall convenience to make sure you’re choosing the right checking account.

Can you earn interest? While most checking accounts don’t pay interest, there are exceptions. 

Are there overdraft fees? If you’ve struggled to keep your budget in check in the past, you’ll want to make sure that your checking account isn’t going to hit you with overdraft fees. Read the fine print, and if you’re worried about these charges, make sure you opt out of any overdraft protection offers

Savings accounts

Is there a monthly fee, and if so, can you get it waived? Just like checking accounts, a lot of savings accounts come with a monthly maintenance fee. However, getting around it can be as simple as having a linked checking account at the same bank or maintaining a minimum balance.

What is the interest rate? A lot of big banks use the phrase “earns interest” as a selling point for savings accounts, but there’s a big difference between earning almost no interest and earning a meaningful APY. Simply put, if you see an APY of 0.01%, you should think about looking elsewhere.

Are there tiered rates? Some savings accounts will only pay the highest APY -- the one that actually catches your eye in advertisements -- on higher balances. Make sure you pay attention to any balance thresholds. If a 3.50% APY only applies to a $100,000 balance, it doesn’t matter if you only have $10,000 to deposit. 

Do you need in-person assistance? If the answer is no, make sure you look at online banks. Without the costs of ATMs and branch locations, these banks have some of the best savings accounts. You’ll need to be OK with an all-digital experience, though.

Alternatives to checking and savings accounts

In addition to traditional checking and savings accounts, here are some other options for storing your money.

Money market accounts: Money market accounts are kind of a cross between a checking and a savings account. The best money market accounts typically pay significantly higher rates than a typical checking account, although many of them impose limits on the number of transactions per statement cycle.

Cash management accounts: Some brokerage firms or robo-advisors offer cash management accounts, which are designed to be an alternative to a traditional bank account. For example, Fidelity offers an account that pays a 2.60% APY.

Certificates of deposit: The best CDs offer higher interest rates than savings accounts, but they come with a much tighter lock on your money. If you need to access the funds before they reach maturity, you’ll pay an early withdrawal penalty. You’ll want to make sure you have enough liquid cash in a checking or savings account to cover your upcoming expenses (and any emergencies) before considering a CD.

Check-cashing services: There are plenty of places to cash checks without a bank account, but check-cashing stores tend to charge very high fees. Plus, you’ll be dealing with cash and a complete lack of FDIC protection. Turn to these as a last resort.

The bottom line

Understanding how checking accounts work compared with savings accounts is a crucial component to your personal finance success. You’ll likely need both of them to handle your immediate expenses while planning for the future. Make sure you pay close attention to monthly fees, minimum balance requirements and interest rates as you compare your options.

FAQs

Technically, yes, but it’s more common to find savings accounts that pay interest. While some of the best checking accounts do offer an APY, the majority of free checking accounts fail to offer any earning potential.

Compare the APY -- annual percentage yield -- that’s advertised at different banks and credit unions. This number represents the money you can earn in one year. Generally speaking, the biggest interest earnings will be found at institutions with lower overhead costs, namely online banks without any branches.

Yes. While recent bank failures have worried depositors, you can rest assured that your money is safe in a checking and a savings account as long as your bank is federally insured by the FDIC (or NCUA, if you do your banking at a credit union). The insurance covers up to $250,000 per depositor per account, per institution.

It depends. A lot of banks have a program in place that will waive fees for customers who have a linked savings account with a certain amount of money, so it can help to keep all your accounts under the same roof. However, it’s also easy to transfer money from a checking account at one bank to a savings account at another. So, it’s worth comparing multiple options to get the lowest fees and highest interest rates.

Your checking and savings balance should always be enough to avoid paying any fees from your bank. For example, if the minimum balance requirement to avoid a maintenance fee is $1,000, make sure you’re never falling below that threshold. The best way to make sure you have enough money in each of your accounts is to regularly monitor your transactions and set account alerts that notify you if you’re creeping toward a low balance.

Regulation D is a government regulation that previously restricted the number of transactions from a savings account to no more than six per statement cycle. While that is no longer a requirement -- a byproduct of the pandemic -- many banks do still impose excessive transaction fees. Some charge as much as $15 for every transaction after the sixth transaction. Those can really add up, so make sure you have a full understanding of your bank’s fees before moving money out of your savings account.

David McMillin writes about credit cards, mortgages, banking, taxes and travel. Based in Chicago, he writes with one objective in mind: Help readers figure out how to save more and stress less. He is also a musician, which means he has spent a lot of time worrying about money. He applies the lessons he's learned from that financial balancing act to offer practical advice for personal spending decisions.
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