Checking vs. savings accounts

If you’re looking to open a bank account, you’ll be faced with a choice: checking vs. savings. But you don’t actually have to choose between them; it’s very common to have both. What’s important is understanding the differences between checking vs. savings accounts so you can use them to manage your money effectively.  

Checking and savings accounts serve different purposes, and there can be advantages to having both types of account. When you need access to your money for everyday spending, your checking account makes it easy to make purchases or get cash at an ATM with your debit card. When you’re looking to put some money away for a rainy day, your savings account can keep it socked away so you don’t accidentally dip into it, and you could earn interest on it too.

What is a checking account?

A checking account is a type of bank account designed for everyday transactions. It’s the account you use to deposit your paycheck, pay bills, and make purchases using a debit card or checks. Think of it as the hub of your day-to-day financial activity, providing easy access to your money whenever you need it.

Features of checking accounts

Debit cards

When you use your debit card, it draws money electronically from your checking account. You can use your debit card to make purchases in stores or online. Some banks offer rewards debit cards, allowing you to earn points or cash back on your transactions. 

Checks

Even in the modern electronic age, paper checks are sometimes necessary for certain transactions. Most banks offer the option of getting checks when you open a checking account, though you may have to pay a small fee for them. 

Online and mobile banking

Most banks provide online banking services, allowing you to manage your account digitally. Some banks even have a dedicated app for accessing your checking account. Online banking features vary widely depending on your financial institution. In addition to viewing your account balance and transactions, you might be able to pay bills online, schedule payments and transfers, or even manage your budget right inside your bank’s app. 

ATM access

If you need to take out cash, you don’t have to visit a bank branch. Nearly all checking accounts allow you to withdraw cash from an ATM using your debit card and a PIN. Every bank has a different network of ATMs, and you may have to pay a fee to make withdrawals in some cases.  

Common checking account fees

Even if your bank offers “free checking,” you might encounter fees with your checking account.  These can add up if you’re not careful, so it’s wise to be aware of all the fees you might encounter. 

Maintenance fees

Some banks impose a monthly fee simply for maintaining an account. Checking accounts that offer interest or rewards are usually more likely to charge a monthly maintenance fee. And in some cases, banks only charge a maintenance fee if your balance falls below a certain amount; you’ll want to keep a close eye on your spending to avoid dipping below the minimum. 

Overdraft and NSF fees

If you inadvertently spend more money than you have available in your account, you may incur overdraft or insufficient funds (NSF) fees. The difference between an overdraft and an NSF fee is small but important. When you’re charged an overdraft fee, the bank covers the charge for you. When you’re charged an NSF fee, the transaction isn’t approved, as the bank declines to pay it on your behalf.

ATM fees

Banks generally have a network of ATMs you can use without charge; they’re either owned by the bank or part of a third-party network the bank has a contract with. But if you use an ATM that is not part of your bank’s network, you may face additional charges. These out-of-network ATM fees can include a charge from your bank as well as a fee from the ATM operator, which can make accessing cash more expensive than anticipated. 

Paper statement fees

Some banks charge a fee for providing paper statements, whether you have them mailed to you every month or request one in a special circumstance. Opting for electronic statements can not only help you avoid this fee, but also be more environmentally-friendly. If you like to keep paper records, you might just print out your electronic statement to avoid paying your bank to mail you a hard copy. 

What is a savings account?

A savings account is a deposit account at a bank designed to help you save money and earn interest over time. Unlike checking accounts, savings accounts are not intended for daily transactions. Instead, they serve as a secure place to store money that you don’t need immediate access to, allowing it to grow with interest.

Features of savings accounts

Interest

While some checking accounts pay interest, nearly all savings accounts do, and rates are typically higher for savings vs. checking accounts. Interest rates vary by financial institution, and most banks offer a few different types of savings accounts that come with different interest rates and characteristics. Regardless of the bank you use or type of savings account you open, interest rates are typically variable, meaning they can go up or down at any time, usually based on inflation or other changes in the economy.

Withdrawal limits

Some savings accounts limit you to six withdrawals per month. This limit was once required by the Federal Reserve; it’s now optional, but several banks still impose it. This restriction is designed to encourage you to keep more money in your savings account for a longer period of time.

Potential ATM access

Savings accounts don’t usually come with a debit card, since they’re not intended to be used for regular spending.That said, if you have a checking and savings account with the same bank, you might be able to use your debit card to deposit or withdraw money from your savings account at an ATM. 

Online and mobile banking

If a bank provides online banking access or an app for checking accounts, it’s a pretty safe bet you can also access your savings account online too. In addition to viewing your balance, your bank’s online features might include the ability to transfer money in and out of your savings account and schedule transactions in advance. Some banks even have financial planning features that allow you to set savings goals and allocate your money amongst them.  

Common savings account fees

Fees for checking vs. savings accounts have some similarities, but there are also fees specific to savings accounts to be aware of. 

Maintenance fees

Just like checking accounts, certain savings accounts may come with monthly maintenance fees. Maintenance fees are generally more common for savings accounts than checking accounts, but plenty of banks offer the option for a savings account with no maintenance fee. 

Paper statement fees

Banks that charge you for receiving paper statements will usually impose this fee for both checking and savings accounts. Some people like to keep a record of their monthly savings account statements so they can easily track how their funds have grown over time. You might want to download your electronic statements to save on your computer or print out so you don’t have to pay a paper statement fee. 

Excessive withdrawal fees

If your savings account limits the number of withdrawals you can make each month, you may be charged for going over that. To avoid excessive withdrawal fees, think ahead to when you expect you’ll need to tap into your savings and plan your withdrawals accordingly. 

Minimum balance fees

Some savings accounts require you to maintain a minimum balance at all times. If your balance falls below the threshold, you might incur a minimum balance fee. In most cases, the fee will be assessed every month your account balance is below the minimum, so these kinds of fees can make it even harder to get back on track with your saving plans. 

Checking vs. savings accounts: key differences

The basic principles are the same for checking and savings accounts: you deposit your money at a bank and then withdraw it when you’re ready to spend. But the details of how these accounts function differ because they’re built for two distinct types of money management. 

Checking vs. savings: purpose

Checking accounts are intended for frequent spending, so they make it easy to make transactions and move money in and out. They’re less likely to offer interest, because it’s assumed that you won’t be holding a mounting balance in the account long term. 

Savings accounts, on the other hand, are designed to help you grow your money over time. The idea is to leave your money in the account and, ideally, add to it. That’s the reason savings accounts pay interest, and why it’s less convenient to take money out.   

Checking vs. savings: interest 

One of the key benefits of savings accounts is that you earn interest on your money. Because savings accounts are intended to hold your money for a longer term, they typically offer higher interest rates than interest-bearing checking accounts. 

Checking accounts are less likely to pay interest at all, since the purpose of the account is for spending, not saving. That said, you can find interest-bearing checking accounts; they often require you to keep a minimum balance and pay monthly maintenance fees. 

Checking vs. savings: access to funds

When it comes to accessing funds, checking accounts offer ease and immediacy. You can use your debit card for purchases, withdraw cash at an ATM, and write checks. There’s rarely a limit on the number of transactions you can make in any given month. 

It’s a bit harder to access your savings account funds. You might have a limit on the number of withdrawals you can make each month. To spend your money, you may have to make an online transfer, which could take a couple days to process, or visit a physical bank branch to withdraw cash. 

Checking vs. savings: fees 

While there are some fees common to both checking and savings accounts, there are other fees distinct to each. Checking accounts are built for frequent spending, so their unique fees are generally tied to transactions, such as overdraft fees or ATM fees. 

The fees particular to savings accounts reflect the account’s intended use as a place to store money for a long period. That’s why savings account fees tend to arise from dropping below the minimum balance or going over your withdrawal limit

Benefits of checking accounts

Convenience for daily transactions 

Checking accounts make it easy to spend money, pay bills, and conduct your day-to-day financial life. Just swipe your debit card at the checkout counter or enter your card details online to handle your expenses. 

Accessibility of funds

You have lots of ways to quickly access your money with a checking account, from using your debit card, to withdrawing cash at an ATM, to transferring money through online banking. 

Ease of deposits

Getting money into your checking account is generally as easy as getting it out. Most employers can deposit your paycheck directly into your savings account. And if you find yourself with a paper check, you can usually use mobile check deposit with your smartphone. 

Debit card rewards

Lots of banks offer debit card rewards programs with their checking accounts, letting you earn everything from cash back to stock shares to points you can redeem for products or discounts. 

Benefits of savings accounts

Earning interest

If you want to put your money to work for you, earning interest is one of the most effective ways to increase your wealth without lifting a finger. And the longer your money stays in the account, the more it can grow through the power of compound interest. The interest you earn is usually credited to your account monthly or quarterly. Once you receive those interest payments, they’re added to your total balance and you start earning interest on that as well. 

Financial discipline

The limitations on accessing your funds are actually a benefit of savings accounts. Because you can’t just swipe your card to make a purchase or take out cash at an ATM on a whim, keeping money in a savings account bolsters your financial discipline. You have to go through more effort and planning to spend your savings, which can lead to more thoughtful financial decisions and reduce impulse buying. 

Building an emergency fund

An emergency fund is a financial safety net for large unexpected expenses, like when your car breaks down or your fridge stops working, or if you experience a financial crisis like losing your job. Experts recommend keeping enough money to cover three to six months’ worth of living expenses in your emergency fund. A savings account is an ideal place to store that money: it’s protected from accidental spending and earns interest while it sits in the account, but is still pretty easy to access when you have to.   

How to choose the right checking account

Fees and charges

You want to spend the money in your checking account on your living expenses, not bank fees. Look for accounts that don’t charge monthly maintenance fees or require a minimum balance. Also keep an eye out for ways to avoid other checking account fees. For instance, many banks offer overdraft protection if you also open a savings account; these programs cover any insufficient funds transactions by pulling from your savings, often without charging a fee. Another common incentive banks use to attract customers is reimbursing you for out-of-network ATM fees, which may be appealing if you frequently use cash.  

Access to ATM networks

Another important factor in choosing a checking account is your access to ATM networks. Find out where your bank’s in-network ATMs are located in your area and be sure they’re close enough to your home, work, school, and other usual haunts. Also take a look at the locations of in-network ATMs across the nation so you can ensure you won’t be stuck with out-of-network fees when you’re traveling.   

Interest-bearing checking accounts

While your checking account is intended for spending, earning interest on your money is a nice bonus. Most interest-bearing checking accounts require you to maintain a certain minimum balance, which is what will generate most of your interest earnings. If you typically keep quite a bit more money in your checking account than you spend each month, you might benefit from a checking account that pays interest. 

Online banking and budgeting tools

Some banks offer bare-bones online banking, but others make digital and mobile banking into a prime feature. If you like to be hands-on with your money management, you might benefit from a checking account that provides a wealth of tools at your fingertips. You might be able to set up transaction alerts to track your spending, create budget categories and set spending limits for them, or even build an entire budget for all your expenses within your banking app. 

How to choose the right savings account

Interest rates 

The higher your interest rate, the faster your savings can grow. Shop around for banks that offer the best rates. In many cases, online banks can offer better rates than their brick-and-mortar counterparts because they have lower overhead costs. Be sure to find out the requirements for earning the highest possible interest rate. Some savings accounts require you to maintain a certain balance, hold a checking account at the same institution, and/or make a certain number of deposits each month to get the best available rate. 

Account fees 

If your goal is to save up money, paying fees can eat away at your progress. When comparing savings accounts, look at all the fees you might have to pay and consider how you plan to use your account. For instance, if you expect to keep adding to your savings over the long term without touching the money, you might feel comfortable with an account that charges fees for falling below a certain balance. As another example, if you’re using your savings account as an emergency fund and are concerned that you may need to make a lot of withdrawals if disaster strikes, you may want an account with no fees for excessive withdrawals.

Minimum balance requirements 

It’s essential to review the minimum balance requirements of any savings account you consider. Make sure these requirements are manageable for your financial situation. Choosing an account with a reasonable minimum balance can help you avoid fees and maintain your savings goals without added stress.

Alternatives to traditional savings accounts

Traditional savings accounts come with many benefits. But if you want to grow your money faster, consider looking into other types of savings vehicles. These can give you higher interest rates, but they also may have some barriers like higher fees or minimum required balances and opening deposits. 

High-yield savings accounts

High-yield savings accounts typically offer significantly higher interest rates compared to traditional savings accounts, which means you can earn more on your savings over time. Interest rates are variable, so they could change at any time, but high-yield accounts generally maintain higher interest rates than traditional savings accounts even when rates drop overall. One consideration to bear in mind is the minimum required opening deposit. Even if a high-yield savings account doesn’t mandate that you keep a certain balance all the time, it may require you to deposit a higher amount upfront compared to a traditional savings account. 

Money market accounts

Money market accounts offer the best of both checking vs. savings accounts by combining higher interest rates with check-writing capabilities. These accounts typically provide better returns than standard savings accounts while allowing you to spend your money more easily by writing a check; some even provide a debit card. That said, money market accounts may come with the same monthly withdrawal limits as a savings account, and they commonly require you to maintain a certain minimum balance.  

Certificates of deposit (CDs)

Certificates of deposit (CDs) offer a higher, fixed interest rate over a predetermined term, typically ranging from a few months to several years. They differ from other savings vehicles in a number of ways. Unlike savings accounts, CDs are not liquid: you can’t add or withdraw money until the term is over. That means you’ll need a large lump sum to open a CD, which can be anywhere from $100 to thousands of dollars. And unlike savings accounts, CDs offer a fixed interest rate; it won’t go up or down during the term. That can be beneficial if rates fall elsewhere while your money is in the CD, but can be a disadvantage if interest rates are rising while your money’s locked up in a CD. 

Security of checking and savings accounts

FDIC insurance

Both checking and savings accounts are protected by federal insurance through the FDIC (Federal Deposit Insurance Corporation) for banks or the NCUA (National Credit Union Administration) for credit unions. This coverage ensures that if your bank or credit union were to fail, your deposits are insured up to $250,000. It’s important to note that the coverage limit applies to the total amount held in all of your accounts at a single institution, so if you have more than $250,000 in savings, you may need to spread your deposits across different banks or credit unions to maximize your insurance coverage.

Data security

Financial institutions take security seriously, and are subject to federal laws regarding privacy and protection of consumers’ financial information. Transactions and online account access are equipped with robust security features like passwords, encryption, and multi-factor authentication, helping to ensure that your funds are shielded from potential threats. 

Checking vs. savings accounts: explore the benefits of both

When you’re looking into banking options, it’s not a question of choosing a checking vs. savings account. They each serve a different purpose, and having both can be an important way to manage your money and work toward your financial goals. 

Your checking account allows you to easily pay bills and day-to-day expenses with your debit card. By also opening a savings account, you can tuck money aside for the future in a spot where you won’t accidentally spend it, and reach your financial goals faster by earning interest. These two types of bank accounts can work in tandem to help you manage your money and work toward your short- and long-term goals. 

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