Checking vs. Savings Accounts: Understanding the Difference

What we’ll cover:

• Checking accounts are good options for a place to keep your money where you can access it for everyday expenses 
• Savings accounts are good options for short-term and medium-term goals, and for building your emergency fund

Checking and savings accounts are some of the most popular consumer financial bank accounts that exist. If you’re reading this, chances are you have one or both of them. These types of accounts can give you easy access to your money and could help you reach certain financial goals, like paying off your credit cards or saving up for that overdue vacation.

But if you have a checking or savings account, we’re curious: do you know the benefits of each? When comparing checking versus savings accounts, are you getting the most out of them? 

Ahead, we’ll run through how these accounts work and go over some of their features like interest rates, monthly maintenance fees, withdrawal limits, minimum balance requirements and more.

Checking accounts: the basics

What checking accounts are for

Checking accounts can be great places to keep money you need to cover typical, everyday expenses, along with a buffer for you to cover unexpected expenses that may crop up.

You might use your checking account to auto-pay bills every month or pull money from it when you’re making ATM withdrawals.

How checking accounts work

You can typically deposit money into a checking account with individual transactions (e.g., cash or check) and with direct deposit.

You can also withdraw money from checking accounts in several ways, such as with debit cards, mobile payment apps, bank websites, and good old-fashioned paper checks.

And checking accounts aren't just for of-the-moment purchases; you can also use the funds from this account to pay credit card bills. 

The big takeaway with checking accounts is that you can make numerous transactions – both deposits and withdrawals – every day. That feature makes these accounts highly liquid. (Just remember that you could be hit with an overdraft fee if your account balance dips below zero.)

Benefits of checking accounts

Although banks may limit how much you can withdraw in a single day, there may only be a few restrictions on the number of withdrawals you can make in a month. This means it could be relatively easy to get access to your money right when you need it.

Checking account interest rates 

Some banks  offer checking accounts that earn interest, for example high-yield checking accounts or high interest checking accounts. As with a traditional checking account, you’ll get a debit card and be able to do stuff like pay your bills or make ATM withdrawals. 

Good to know: Some interest checking accounts may charge steeper monthly maintenance fees or have higher balance minimum requirements than traditional checking accounts. (Others may not.)

Checking account fees

When it comes to choosing a checking account – and pretty much any type of account you’re planning on dropping your money into – it’s good to see if there are any fees and how likely you are to run into them.

For example, some banks could charge you fees for things like dipping below a minimum balance, using out-of-network ATMs, over-drafting your account or printing paper checks.

Some checking accounts may come with monthly maitenance fees. Banks may also have workarounds for some of these fees, such as waiving an account fee if direct deposits regularly replenish the account.

Security

If your bank has FDIC insurance, your checking account will be insured in line with FDIC limits. (This article explains how FDIC Insurance works.) 

Savings accounts: the basics

What savings accounts are for

The name “savings account” seems pretty self-explanatory, but there’s a bit more to it than that. In this article, we’ll discuss savings accounts but there are other types of deposit accounts that you also save money in, each with their own rules.

These include things like certificates of deposit and money market accounts. 

In general, savings accounts are accounts used to deposit money you plan on using for short-term to medium-term goals, like a down payment on a house, or as a cushion (aka your emergency fund).

For longer-term goals, like retirement, there’s also investing. And if you’ve heard saving and investing thrown around interchangeably, don’t worry. We’ve got you covered with a savings vs. investing article that explains the difference.

Access to savings accounts 

There are often a few ways to move money in and out of savings accounts. You can transfer money online or through an app, and, if you have ATM access, through an ATM.

Savings account APY (Annual Percentage Yield)

Savings accounts typically pay some interest on your money. What’s more: If you’re saving money with a high-yield savings account, you could be looking at a higher annual percentage yield (APY) than what you'll find at traditional banks.

If you’re wondering why you don’t get the same sort of deal with a checking account, think of it as a bit of a trade-off: You have the chance to earn more interest in exchange for some additional limits on your withdrawals.

Savings accounts fees

Some savings accounts may include fees, so you’ll want to look out for things like an annual account fee or fees for dropping below a minimum, balance or for exceeding the number of allowed withdrawals.   

Security

If your bank has FDIC insurance, your savings account will be insured within FDIC limits. There are also some savings accounts offered through brokerage firms, in which case, your money may be protected by SIPC coverage. Learn more about the difference between FDIC and SIPC coverage.

Checking account vs. savings account: how to use them

At the most basic level, a checking account is a place to keep money that you want ready access to and may or may not offer interest. A savings account is a place to keep money you might not want to touch for some time, relatively speaking, and also allows you to earn interest. 

Both could have fees and both could have different access points depending on the bank or financial institution you’re working with. (Same goes for FDIC coverage.) That’s why you might find it handy to have both a checking and a savings account.