Checking vs. Savings Accounts: How Different Are They?

Key Takeaways

Checking accounts and savings accounts are the two most common types of deposit accounts that banks and credit unions offer.
A checking account allows you more freedom to use your funds for transfers, purchases and other types of transactions.
A savings account may have more limits on withdrawals, but is more likely to earn higher interest so you can grow your savings over time.

Checking accounts and savings accounts are two important types of bank accounts to help you manage your money. However, if you’re new to the world of banking, you might not be familiar with how they work or complement each other.

So if you’re curious whether you’re better off with a checking versus a savings account, read on to learn about their benefits and find out which one is best for you.

What Is a Checking Account?

A checking account is a type of deposit account that allows you to easily access your money for daily transactions, such as paying bills or making purchases.

Checking accounts generally come with checks and a debit card you can use to pay for expenses. Account holders can use their debit card or write as many checks as they would like, tapping their account balance. There are normally no restrictions on the number of transactions.

A checking account is also useful for depositing your paycheck, whether it is a paper check or a direct deposit from your employer.

Benefits of a Checking Account

The primary benefit of a checking account is the convenience of managing your money while keeping it safe. Checking accounts offer a safer alternative to carrying large amounts of cash; banks provide security measures such as fraud monitoring, encryption and account verification to protect your funds. Deposits are usually protected by the Federal Deposit Insurance Corp. up to $250,000.

In addition to these benefits, you also have the ability to receive direct deposits, establish autopay and electronic transfers, and access various budgeting tools offered by the bank, says Matt Steenson, head of retail growth strategies at PNC Bank.

How to Choose a Checking Account

When choosing a checking account, one of the most important factors to consider is the fees, according to Kendall Meade, a certified financial planner at SoFi. These can include overdraft fees, account minimum fees, monthly fees, ATM fees and more. “It is important to take all of these fees into account because even if you are getting a higher (interest rate), fees may end up costing you more than the interest you earn,” Meade says. Look for banks that offer no or low fees, or reimburse account holders for certain fees.

Other important features will depend on your financial needs and lifestyle. For example, you may want an account with a bank that has a large ATM network or charges no foreign transaction fees if you travel frequently. “If digital is your preferred method of banking, reviewing the bank’s mobile app and capabilities can also be an important part of the decision,” Meade notes.

In general, it’s important to select an account at a financial institution that has a strong reputation and financial stability. You can check out customer reviews on sites such as BBB.org and Trustpilot.com to see what others have to say about their experiences.

Use this free savings calculator to project how your money can grow over time.

What Is a Savings Account?

A savings account is another type of deposit account, but designed to set aside money and grow your savings over time. “These accounts are often used for achieving longer-term financial goals, emergency funds or major purchases, like a house or car down payment,” Meade says.

They also tend to offer higher interest rates than checking accounts. Today, the average savings account rate is 0.38%, according to the FDIC. But some of the best savings accounts are offering an annual percentage yield upward of 4%.

It’s also important to note that banks used to be required to limit your savings account withdrawals to six per month, but that rule has been suspended. Some banks now allow unlimited withdrawals, while others still enforce the old limit. If you exceed the number of withdrawals allowed, you may pay a fee for each transaction.

Benefits of a Savings Account

Like a checking account, a savings account offers a safe place to store your money. What sets a savings account apart from a checking account is the ability to earn interest on those funds.

A savings account also allows you to separate your funds for specific savings goals. Whether you’re saving for a vacation, a down payment on a home, emergency expenses or any other objective, having a dedicated savings account can help you track your progress and stay focused on your goals. It can also prevent you from spending the money you’ve set aside for specific purposes.

How to Choose a Savings Account

Again, choosing the right savings account can also depend on your financial goals and habits, Meade says. “Key considerations include the interest rate, minimum balance requirements and access to funds,” she explains.

Checking vs. Savings Accounts: Similarities and Differences

Checking vs. Savings Accounts: Should You Have Both?

When it comes to deciding between a checking or savings account, the truth is that you don’t need to choose one over the other. “Having both checking and savings accounts can help you to organize your finances,” Meade says. “I recommend keeping money to cover your monthly expenses in your checking account so that you can have your bills paid out of it, but keeping your emergency fund and other savings goals in a savings account.”

Additionally, many banks allow you to link your checking account to a savings account, which gives you overdraft protection in case you spend more money than is currently in the checking account.