What’s the Difference Between a Checking and Savings Account?

By Jackie Lam
September 27, 2019

If you’re opening a bank account, you might be scratching your head wondering: What’s the difference between a checking and savings account? And do I need both? 

Perhaps you are like some people (*raises hand*), and you once thought a checking and savings account were one and the same thing.

Yet, while these two types of accounts may be similar, they also have some key differences.

In this guide, we’ll go over the benefits and downsides of each type of bank account. We’ll then examine the differences between the two. Lastly, we’ll break down how having both bank accounts can help you with your money goals.

What is a checking account?

Checking accounts are also known as “transaction accounts” because they’re designed for just that: taking money out and putting it in. In other words, a checking account is where you keep money for your day-to-day spending.

Here’s what checking accounts are typically used for: 

  • Receive or send cash through a payment platform (aka Venmo, Cash app)  
  • Deposit your paychecks
  • Set up automatic payments for your bills 
  • To send checks 

You may be wondering: Does a debit card go along with a checking or savings account?

The answer: A debit card is typically linked to your checking account. So, when you use your debit card to pay for groceries or take money out of an ATM, that money is coming from your checking account. 

The pros of a checking account:

You can freely make unlimited deposits and withdrawals as money in a checking account is very liquid. Plus, if you have bills to pay, you would generally pay for them using funds in your checking account. 

The cons of a checking account: 

Checking accounts aren’t really the best place to keep your money for the long-term. Why? Checking accounts don’t always pay interest. 

What is interest, you ask? It’s what your bank pays you for holding onto your money. If a checking account does pay interest, the APY (annual percentage yield) tends to be tiny.


What is a savings account? 

A savings account is where you stash money to save up for future goals.

Whereas money in a checking account is meant to be fluid and moves in and out of your account frequently, you’d keep money in a savings account for longer periods of time. You may even use your savings account to save for a rainy day or pay for unexpected expenses. 

The pros of a savings account:

Savings accounts are a safe way to stash your money. They can also be an easy way for you to “hide” money from yourself so you don’t spend it. Having a savings account can also hold you accountable for your future goals, like saving enough money for a vacation, new car, etc.

Plus, you can typically earn some interest (more than you would in a checking account).

The cons of a savings account: 

Whereas checking accounts offer unlimited transactions, savings account often have restrictions on the number of transactions you can make. That’s due to a regulation from the Federal Reserve, which limits withdrawals or transfers in your savings account or money market to six a month. 

You also typically won’t earn as much in interest as you would in an investment account, such as a 401(k) or IRA. According to the FDIC, the average interest rate for savings accounts was 0.09% in August 2019. And while some online banks and high-yield accounts offer a higher interest rate, they also usually require higher minimum amounts. 

Money market accounts and certificates of deposits (CDs) also usually offer higher interest rates than savings accounts. They tend to have higher minimum deposits and other requirements. For instance, a CD requires you lock in the money for an agreed-upon period of time, such as 12 months, 18 months, and so forth. If you withdraw your money preemptively, you’ll be dinged with a penalty.

What is the difference between a checking and savings account? 

Now that you understand what both checking and savings accounts are, you can likely see why you can use both of them.

For example, you can pull money from your checking account to make purchases, pay bills, and pay back your friend for last week’s dinner — that sort of thing. Your savings account, on the other hand, is where you keep money for a longer period of time. 

When you have both a checking and a savings account, you can easily auto-save money so it goes from your checking to savings account. On the flip-side, if the unexpected happens and you need access to your money in a pinch, you can easily transfer money from your savings to your checking account. 

Unlike investment accounts, the FDIC insures money in each checking, savings, money market and certificate of deposit account up to $250,000 per depositor, per bank. 

What should you look for when you’re shopping for a checking and savings account?

When determining the best accounts for you, here are a few key things you should carefully consider:

1. Fees

Banks make their money in a number of ways. And one of them is through charging fees. 

Common fees for checking accounts include the following:

  • ATM fees

If you’re taking money out of an ATM outside your bank’s network, you’ll typically be charged a fee of anywhere from $2 to $4. Note that sometimes a bank might charge an ATM fee that’s in-network. It just depends on the bank.

  • Overdraft fees

If you don’t have enough money in your account for a transaction, you might be dinged with an overdraft fee. Overdraft fees typically are $35 per transaction. Whereas there might be a cap on how many overdraft fees you can incur in a given day, this cap can be anywhere from four to six a day. 

  • Monthly fees

If you don’t maintain the minimum amount in your account, you might be charged a monthly fee. Some banks waive the monthly checking fee if you set up direct deposit. 

  • Foreign transaction fees

If you’re traveling out of the country and use your debit card, you might be charged a fee for each transaction. It’s typically 3% of each transaction.

  • Card replacement fee

If you lose your debit card, the bank might charge a fee to send you a new one. This could range anywhere from five dollar to $25 a card. 


Common fees for savings accounts include:

  • Monthly maintenance fees

Sometimes you can avoid checking account fees by maintaining a minimum balance or setting up automatic transfers, making a minimum number of transactions in a given month, or having multiple accounts with the same bank. 

  • Overdraft fees

You might be able to avoid an overdraft fee if you have overdraft protection. However, this oftentimes comes with a fee. And even if you have overdraft protection, you might be charged a fee, but just a lower one.

To avoid being dinged with fees, look carefully at the minimum requirements to avoid monthly fees, or look for a bank that doesn’t charge any fees whatsoever. 

  • Minimum balances

Depending on your bank, there might be a minimum balance to open an account. If you don’t maintain this minimum balance, you might incur a fee. 

2. Convenience

Now that we’ve covered all the fees you might have, it’s time to take convenience into account when choosing a bank.

For starters, check the bank’s network of ATMs and see where you can withdraw money from a fee-free ATM. Also, do some poking around to see how their customer service fares. Is it easy to get a hold of someone? Are they helpful once you get someone on the line or via chat?

If you’d prefer a brick and mortar bank, check on the hours and make sure the bank is open at convenient times. And regardless of whether you bank at a local branch or an online bank, make sure they have an intuitive and easy-to-use app. This way you can do all your banking – from requesting checks to paying bills to splitting a bill with friends – from the palm of your hand.  

How to open a checking or savings account

Whether you’re opening an account online or with a brick-and-mortar bank, you’ll need to supply personal information such as your name, address, and date of birth. You’ll also need to provide an ID number, like your Social Security Number. 

If you have questions about the bank’s services or opening an account, reach out to the bank to talk to someone in customer service. 

And here’s a final pro tip: Want to avoid unnecessary fees? Chime is on a mission to change banking, with no hidden fees.  

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Jackie Lam is an L.A.-based financial writer whose clients include Fortune 500 companies and FinTech startups. Her work has appeared in Forbes, Business Insider, and GOOD.

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