Checking vs. Savings Accounts: Understanding the Difference

Ahead, we’ll review how these accounts work, going over their features and potential benefits to help you get the most out of them.

What is a checking account?

A checking account is a type of deposit account where you can keep money for your everyday transactions – buying groceries, paying for coffee, dining out, etc. Whenever you use your debit card or write a check, you’re drawing money from your checking account.

You may also use your checking account to auto-pay recurring bills like rent, utilities, and credit card statements.

How do checking accounts work?

You can typically deposit money into a checking account via cash, check, or direct deposit (e.g., your paycheck). When you need to access your money, you can do so in the following ways:

• Using your debit card
• Making a cash withdrawal at ATMs
• Writing a check

Benefits of a checking account

Easy access to your money. Because you can easily access your funds and make various transactions, checking accounts are considered highly liquid. 

FDIC insurance. If you open your account at a FDIC member bank, your deposits are insured up to the maximum amount allowable by law. which is currently $250,000 per depositor, per FDIC-insured bank, per ownership category.

Convenient payment options. You can pay for your purchases via a debit card or check-writing. For recurring bills, you may set up autopay (if this feature is available at your bank).

Flexible deposit options. You can fund your checking account through cash, check, direct deposit, or a transfer.

Potential interest rate earnings. Although not common, some banks offer checking accounts that earn interest – for example, high-yield checking accounts. However, some of these interest-bearing checking accounts may come with higher monthly maintenance fees or higher minimum balance requirements than a traditional checking account.

Checking account fees and requirements

Checking accounts may come with fees and balance requirements. These will be determined by your bank, but here are some common ones to pay attention to.

• Minimum balance requirement
• Maintenance fees
• Overdraft fees
• Non-sufficient funds fees
• Foreign transaction fees
• Out-of-network ATM fees
• Check fees

Depending on your bank, you may be able to avoid or waive some fees if certain account activity or requirements are met. This could include things like setting up a direct deposit or making a minimum deposit each month.

Some tips to help you minimize or avoid unnecessary fees:

• Understand your account’s fee schedule.
• Review your monthly statements.
• Set up account alerts to notify you when your balance drops below a certain threshold.
• Sign up for overdraft protection if your bank offers this feature.

You can read more about them in our Guide to Savings Accounts.

Benefits of a savings account

Easy to open. Banks and credit unions offer a variety of savings accounts. Generally speaking, you can open an account without having to save up a lot of money first. Do a little comparative shopping to help you find accounts that have low or no minimum opening deposit or balance requirements.

Liquidity. Like checking accounts, you can easily access your savings whenever you’re ready to make a withdrawal. However, some banks may limit the number of withdrawals you can make each month. Check with your bank for details.

Interest earnings. Banks pay you interest for your savings deposits. The interest rate is typically expressed as an annual percentage rate or APY, which is the amount of interest you could expect to earn if you leave your money deposited in a 12-month period. The APY for a traditional or high-yield savings account is variable.

FDIC insurance. If you open an account with a FDIC member bank, your deposits are insured up to the maximum allowable by law. If you’re not sure if a bank is a member of the FDIC, you can use the FDIC’s BankFind tool to look up the financial institution and its membership status.

Savings account fees

As with checking accounts, savings accounts can come with fees like:

• Maintenance fees
• Minimum balance fees
• Wire transfer fees
• Inactivity fees
• Statement fees

When shopping for an account, you’ll want to look for a bank that charges low to no fees. That’s because the more you have to pay in fees, the less you can put toward your savings goals. Always review the fee schedule before opening an account.

Good to know: Online banks can typically offer accounts with lower fees and more competitive APYs compared to brick-and-mortar banks.

How to choose the right checking or savings account for you

Here are some questions to consider:

• Do you prefer to work with a brick-and-mortar bank or online bank?
• If you prefer in-person banking, are there branches or ATMs conveniently located near your home or office?
• Does the bank offer competitive APYs?
• Can you meet the account requirements?
• What are the fees?
• Is the bank a member of the FDIC?

Keep in mind that you don’t have to choose between having a checking or savings account. Many people own both – a checking account for their daily money needs and a savings account for their near-term financial goals.