Savings and checking accounts are two of the most common products banks and credit unions offer, but they serve very different purposes. Checking accounts make it easy to spend your money while savings accounts — you guessed it — are better for saving your cash.
However, when it comes to our finances, it can feel like our list of decisions is never-ending.
Should I start saving for retirement now? How should I file my taxes this year? Do I need homeowners and flood insurance?
To make any decision about money, it helps to have all the pertinent information.
When deciding whether to open a checking or savings account, you should start by knowing how they differ.
So What’s the Difference Between Checking and Savings Accounts?
At the simplest level, customers use a checking account for spending money and a savings account for saving money. Typically (though not always), customers open both bank accounts with the same bank or credit union.
Savings vs. Checking At a Glance
|Features||Savings Account||Checking Account|
|Best for||Saving money||Spending money|
|Interest||Yes, varies by bank||Sometimes, but typically low|
|Potential fees||Monthly maintenance; withdrawal limits||Maintenance; overdraft; ATM; checks; lost card|
|Withdrawal limits||Typically six||n/a|
|Minimum balance||Varies by bank account||Varies by bank account|
|Depositing||Direct||Direct and mobile check|
|Typical features||ATM card (some banks)||Checks; debit card; overdraft protection|
What Is a Checking Account?
A checking account offers customers an easy way to spend their money: with paper checks, with debit cards, through money transfer apps and via online checkouts.
These accounts are typically insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) up to $250,000.
Checking accounts typically come with a debit card and checkbook and can be funded through direct deposits, wire transfers, ATM deposits, mobile check deposits and in-person deposits.
Most basic checking accounts do not offer any interest, but some financial institutions, primarily online banks, are starting to offer (admittedly insignificant) interest rates for their checking accounts. Some premium checking accounts are billed as high interest, but watch out for the associated monthly fees.
Most checking accounts do carry monthly maintenance fees, but waiving them is usually easy if you can maintain a specified minimum balance and/or earn enough in monthly direct deposits. Other common fees to consider are foreign transaction fees, overdraft fees and out-of-network ATM fees.
What Is a Savings Account?
Unlike a checking account, a savings account is meant to let your money sit and accrue interest. Interest rates can vary widely; in general, online banks offer higher-interest savings accounts.
Savings accounts are also insured by the FDIC or NCUA up to $250,000.
If your bank account is earning you the national average annual percentage yield (0.07% at time of publication), it’s time to rethink where you bank. The best savings accounts are currently offering up to 0.60% annual percentage yield (APY).
Because savings accounts are built to let your money sit, only to be called upon to fund larger purchases, there are often limits to how often you can withdraw funds electronically (in-person and ATM withdrawals do not count toward the total).
Until COVID-19, federal law limited this to six, but the Federal Reserve eased these rules in light of the pandemic. While some banks have altered their limitations, many still cap it at six despite the legal changes.
Note: Money market accounts are not the same as savings accounts. Though similar, they offer different ways for you to access your funds (ATM cards and checks for money markets); money market accounts often earn more interest as well.
How These Bank Accounts Differ
Here are the major differences between a checking vs. savings account to consider before depositing your money.
How They’re Designed to Be Used
The single biggest difference between checking and savings accounts is how they’re designed to be used. A checking account is meant to store the money you plan to spend, while a savings account is meant to hold your money for a relatively long time.
Use the money in this account for small and/or everyday purchases, such as buying groceries, going to the movies and filling up your gas tank.
Ideally, you don’t spend this money in the short term. You’d use it to build an emergency fund for, say, unexpected house repairs, or save for something big, like a car, wedding, house or college.
You don’t invest through a savings account, nor do you save for retirement here. You’ll want to open a separate retirement account to save for the future and invest.
How to Access Your Money
It’s typically easier to access your money through a checking account than it is through a savings account.
You can spend or withdraw money in your checking account by:
- Using a debit card: Paying with a debit card is the same as paying with cash; the money is withdrawn directly from your checking account.
- Writing a check: Although paying with paper checks is becoming less common, you can often make payments from your checking account with a check, too.
- Withdrawing cash from an ATM. Just make sure it’s in network to avoid those fees.
Accessing money in your savings is a bit more difficult than acquiring cash from your checking account. You can:
- Transfer money from your savings account to your checking account online: Even if your checking and savings accounts are at different banks or credit unions, it’s still possible to transfer money from one institution to another.
- Withdraw from your savings account at an ATM: Using your debit card, you can withdraw funds from your savings account at an ATM if your accounts are at the same financial institution. Just select “savings” instead of “checking” when the ATM prompts you to choose which account to withdraw from.
Unlike checking accounts, savings accounts often have limits on the number of withdrawals you can make.
These accounts don’t have limits on how often you can withdraw money. You should be able to do so as many times as you want per month, provided you don’t overdraw your account — beware the dreaded overdraft fee.
However, many accounts do have restrictions on how much you can withdraw from an ATM or spend with your debit card in a single day. These limits vary by banking institution and can range from a few hundred to several thousand dollars.
Federal law used to restrict withdrawals from your savings account to just six times per month. However, this rule only applied to certain transactions, such as transferring money from your savings to your checking account via online banking and sending wire transfers to someone else. (Withdrawing money from your savings account at an ATM or your bank did not apply.)
Though the Federal Reserve eased these restrictions at the start of COVID-19, many banks still impose a monthly withdrawal limit.
Fees and Deposit Requirements
Fees and minimum deposits for both checking and savings accounts vary by institution.
Some institutions have a minimum deposit to open a checking account, usually ranging from $25 to $100. It is possible to find a bank that doesn’t have a minimum to open an account, though.
Some banks and credit unions also charge a monthly maintenance fee for checking accounts. However, if you also open a savings account with the same bank and/or maintain a minimum balance, many will let that monthly maintenance fee slide.
There are a few other fees associated with a checking account. Depending on your circumstances, you may have to pay:
- Overdraft penalties.
- Card replacement fines.
- Incoming/outgoing wire transfer fees.
- Out-of-network ATM fees if you withdraw cash from an ATM that isn’t operated by your bank.
Many banks have minimum balance requirements for opening a savings account. They also sometimes charge a monthly fee, but as with a checking account, they might waive it if you meet certain criteria, such as maintaining a minimum balance and/or having another account with the bank.
Remember the aforementioned limit of six withdrawals per month for saving accounts? Well, if you exceed that, you’re charged a fee. It’s usually under $15, but if this becomes a regular occurence, a bank may convert your savings account to a checking account.
Ready to sign up for a checking or savings? Check out our current list of bank promotions for a chance to gain a bonus when signing up for a new account.
Savings accounts usually pay slightly higher interest rates (expressed as an APY) compared with checking accounts. Online banking is the best way to ensure you get the highest interest rate for your savings account.
Checking account interest rates are notoriously low, with a national average of 0.03% as of publication. To clarify, that means you’d earn 3 cents per year on a $100 balance. And not even all checking accounts pay interest.
There are accounts that offer interest rates that are higher than the national average known as high-yield checking accounts. Usually, though, those interest rates are still minimal, so to find an account that offers higher interest rates, most people focus on savings accounts.
Savings accounts are known for having higher interest rates than checking accounts, but they still aren’t much: The national average for regular savings accounts is 0.07% as of publication, or a mere 7 cents per $100.
Online banks offer much higher APYs for their savings accounts.
Because you theoretically leave money in a savings account for a long time, that money could build a decent amount of interest if you strategically choose a high-yield savings account.
Savings vs. Checking Account: Which Should You Open?
Ideally, you would have both a checking and a savings account. In your checking account, you’d keep money for small or everyday purchases, while in your savings account, you’d store money for emergencies and short- or long-term goals.
It’s worth considering whether you should open both accounts with the same bank or credit union. There are a few pros to keeping them at the same institution. For example, some places will waive fees if you have two accounts with them, and it’s easier to transfer money between accounts if they’re together.
However, after doing a little research, you may decide that one establishment seems better for a checking account, while a different one seems ideal for savings accounts. In fact, not all online banks and credit unions offer customers both types of accounts.
Your specific circumstances will affect your decision, as well. For instance, if you don’t own a car, you’ll probably want an account through an online bank or at a brick-and-mortar financial institution within walking distance of your home.
Hopefully, you’ll find your perfect matches and have all the information you need to make this financial decision.
Contributor Timothy Moore is a writer and editor in Cincinnati, Ohio. He focuses on banks, loans and insurance for The Penny Hoarder. His work has been featured on Debt.com, The Ladders, Glassdoor, WDW Magazine, Angi and The News Wheel. Laura Grace Tarpley is a former contributor to The Penny Hoarder.