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 account options. Lastly, we’ll break down how having both bank accounts can help you with your money goals.
In This Article
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
- 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.
In summary, the pros are:
- No withdrawal limits
- Easy to use for everyday spending
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.
In summary, the cons are:
- Typically lower interest rates than savings accounts
- Not ideal for long-term savings
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. Savings accounts 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 with savings accounts(more than you would in a checking account).
In summary, the pros are:
- Typically has a higher interest rate than a checking account
- Allows you to build long-term savings
The Cons of a Savings Account
Whereas checking accounts offer unlimited transactions, savings accounts often have restrictions on the number of transactions you can make. Although the FDIC announced in April that it would no longer require financial institutions to enforce the limit of six withdrawals per month, you’ll need to check with your financial institution to know whether it’s lifted its limit.
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 currently stands at 0.04% APY. 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 to 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.
In summary, the cons are:
- Monthly withdrawal limits often apply
- Investment accounts, money market accounts, and CDs usually offer higher interest rates than a savings account
- Not ideal for everyday spending
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 account 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.
Here are the main differences between a checking account and a savings account:
| Checking | Savings | |
| Primary use | Spending money | Saving money |
| Interest | Sometimes | Yes |
| Withdrawal limits | No | Yes |
| Minimum balance | Varies by bank | Varies by bank |
| Debit card access | Yes | Rarely |
| Checks | Yes | Rarely |
| Fees | Yes (see bank fee chart below) | Yes (see bank fee chart below) |
How to Choose the Best Checking and Savings Accounts
When determining the best accounts for you, here are a few key things you should carefully consider.
1. Bank 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:
| Bank Fee | What You Should Know |
| 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 the following:
| Bank Fee | What You Should Know |
| Monthly maintenance fee | 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 still be charged a fee, 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. |
| 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 to open an account with 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 With Your Bank
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.
