Checking vs. savings account: What’s the difference?

One is for everyday use; the other is for putting money aside

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An essential part of budgeting is setting up the tools to manage your money, and most people can benefit from opening both a checking account and a savings account.

You can use a checking account to process daily transactions like paying bills and depositing checks, while savings accounts are designed to help you save money that can still be easily accessed when needed, such as building up an emergency fund.


Key insights

  • Checking accounts are best for processing everyday transactions such as depositing your paycheck or paying bills.
  • Savings accounts are best for setting money aside that you can easily access if needed.
  • When choosing a bank account, consider account requirements including minimum balance or the number of monthly transactions to prevent or reduce fees.

What is a checking account?

A checking account is a deposit account offered by banks and credit unions to help you process day-to-day transactions. You can easily access your funds by writing checks or using a debit card, both online and at a point-of-sale (POS) terminal. However, you may need to pay fees for things such as overdrawing your account or using an out-of-network ATM.

While the number of transactions you can process monthly with a checking account is unlimited, you may be charged fees for very high volumes (e.g., business checking accounts with hundreds or thousands of transactions). Depending on how the account is structured, you may or may not earn interest on the money you deposit in a checking account.

Daniel Colston, a certified financial planner with Upward Financial Planning, explained: “Some checking accounts may offer interest, but it is typically lower compared to savings accounts. Additionally, they might come with fees, although these can often be waived by meeting specific requirements, such as maintaining a minimum balance or setting up direct deposits.”

If you open a checking account with a financial institute insured by either the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), up to $250,000 of your money is protected. This means you aren’t at risk of losing money if the bank or credit union fails.

Checking account pros and cons

Pros

  • Unlimited number of transactions each month
  • Access your funds by writing a check or using a debit card
  • Money is safe if it’s on deposit with an FDIC-insured bank or NCUA-insured credit union

Cons

  • You may be charged fees for very high transaction volumes
  • You might be charged fees if you overdraw your account or use an out-of-network ATM
  • You may not earn interest on your deposits or your interest rate might be lower than with a savings account

Before you open a checking account, “it’s important to understand the fees, interest rates and minimum balance requirements associated with each type of account,” said Michael Collins, a chartered financial analyst and professor at Endicott College. “By doing your research, you can choose the account that best meets your needs and helps you reach your financial goals.”

Consider the interest rate you’ll earn (if any), the fees you might be charged and what you can do to avoid fees. For example, some financial institutions waive fees if you process certain monthly transactions or maintain a minimum account balance. Depending on your needs, you might even be able to find a free checking account.

What is a savings account?

A savings account is a deposit account offered by banks and credit unions that allows you to store and access your money easily. Unlike with most checking accounts, you’ll earn a modest interest rate. However, in many cases, you can’t access your funds via a check or debit card. Plus, you may only be able to make limited monthly withdrawals or transfers.

Like with checking accounts, when you place your money on deposit with an FDIC- or NCUA-insured institution, the government protects at least $250,000.

If you want to benefit from the safety afforded by a deposit account but earn a higher rate of return than you can with a checking or savings account, you might consider a certificate of deposit (CD). However, make sure you won’t need to access the funds during the CD’s term, or you may need to pay an early withdrawal penalty.

» MORE: CDs vs. savings accounts: Which is right for you?

Savings account pros and cons

Pros

  • Often pays higher interest than a checking account
  • Doesn’t have a set term like a CD, so you won’t be charged a withdrawal penalty
  • Savings accounts at FDIC- or NCUA-insured financial institutions are considered safe

Cons

  • Withdrawals or transfers are sometimes limited
  • Debit cards and check-writing are often not allowed
  • You may earn less interest in a savings account than you would with a CD

As you’re analyzing savings accounts, be sure to consider how much return you’ll get with a given bank.

“A critical point is that not all savings accounts are the same,” said Michal Strahilevitz, Ph.D., director of the Elfenworks Center for Responsible Business at Saint Mary’s College of California. “Some of the big banks are still paying less than 1% on a savings account, while others are paying upwards of 3%.”

Besides comparing financial institutions, you might also consider the account type. You may earn more interest if you open a high-yield savings account. However, you may also need to maintain a higher minimum balance to avoid fees. Carefully look at all the account requirements before opening.

» MORE: Is a high-yield savings account really high-yield?

Which should you choose?

Most people can benefit from having both a checking account and a savings account because each is used for a different purpose.

“If you need an account for everyday spending and easy access to your money, a checking account is your best choice. If your goal is to save and grow your money over time, a savings account is more suitable,” said Colston with Upward Financial Planning.

“Most individuals find it beneficial to have both a checking and a savings account, using the checking account for daily transactions and transferring a portion of their income into a savings account to build their emergency fund or save for future goals.”

Some key factors to consider when shopping for a bank account include:

  • Fees you may be charged and how to avoid them
  • How much interest you’ll earn on the account
  • Any limitations on how you can use the account (e.g., withdrawal limits)
  • How many transactions you can process each month
  • How you can access your funds (e.g., the ability to write checks)
  • Minimum balance needed to open the account or avoid fees

Some financial institutions offer sign-up bonuses for new account holders, which may be worth considering. But even if a sign-up bonus is enticing, make sure the account is right for you before opening it. Depending on the annual percentage yield (APY) and fees associated with the account, you might be better off choosing an account without a sign-up bonus.

Other types of bank accounts

While most people can benefit from having both a checking account and a savings account, there are other types of bank accounts to consider, depending on your needs.

Money market account

If you want an account that offers interest rates similar to a savings account but allows you to write checks or use a debit card, then a money market account (MMA) is a good alternative. However, remember that it may have transaction or withdrawal limits.

High-yield checking account

A high-yield checking account may be a good option if you need to process many monthly transactions but still want to earn interest. You might earn a rate as high as on a savings account, but you may need to maintain a higher minimum balance or process a minimum number of transactions to get the rate or avoid fees.

Certificate of deposit

If you don’t need to access your funds frequently, you may be able to earn a higher interest rate by placing your funds in a CD. The funds you put in the CD will earn a fixed rate for a set period. However, you may need to pay an early withdrawal penalty to access funds before the term ends.

» MORE: 5 things to know before opening a certificate of deposit

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FAQ

Should you have your checking and savings account with the same bank?

While it’s perfectly acceptable to maintain your checking and savings accounts with the same bank, you can also open these accounts at separate banks. A few benefits to keeping them at the same bank are you can easily transfer funds between accounts, you may receive reduced or waived fees for having multiple accounts, and money management is easier with one bank.

Even so, you might consider using multiple banks to receive the best possible interest rate or to maximize your FDIC insurance protection if you have more than $250,000 in combined deposits.

Is your money safer in a checking or savings account?

The money you deposit into a checking or savings account is equally safe because both account types are protected by federal deposit insurance if they are opened at an FDIC-insured bank or NCUA-insured credit union.

However, checking accounts are inherently more susceptible to fraud than savings accounts, since they’re often used to process transactions via debit cards, checks and e-transfers.

What is a good interest rate on a savings account?

A good interest rate on a savings account is a rate at or above the national average. As of March 20, 2023, the average national deposit rate for a savings account was 0.37%. While this is the national average, you may be able to receive rates on savings accounts of 3% or higher with some financial institutions, including those offering online savings accounts.

Can you earn interest on a checking account?

While regular checking accounts don’t earn interest, you can earn interest if you deposit your funds into an interest-bearing checking account. In exchange for earning interest, you may need to maintain a higher balance than you would with a regular noninterest-bearing checking account.

Are savings accounts affected by the stock market?

Your savings accounts are not affected by the stock market. In exchange for depositing your funds in a savings account, the bank pays you interest. The return you’ll earn is based on your account’s APY and is not connected to the stock market.

Can you lose your money in a checking or savings account?

Generally, the money you place in a checking or savings account is safe. You can, however, potentially lose money in a checking or savings account if:

  • Your funds are not with an FDIC-insured bank or NCUA-insured credit union.
  • You have more than $250,000 on deposit and the financial institution fails.
  • You’re a victim of bank fraud and you don’t promptly report the fraud to your financial institution (e.g., within 60 calendar days of the date of your bank statement).
What is Regulation D?

Federal Reserve Regulation D is a rule establishing how financial institutions must manage the money you store in their deposit accounts. The rule previously dictated that you couldn’t make more than six convenient monthly transfers or withdrawals from a savings deposit account.

After the Fed suspended this transfer rule in April 2020, financial institutions can now set their own limits or entirely eliminate transaction limits.

Bottom line

A checking account is best for processing day-to-day transactions like paying bills and depositing checks. A savings account is best if you need a safe place to set aside money you can easily access when needed, such as an emergency fund. While most people need both types of bank accounts, carefully consider how you plan to use the funds.

“Choosing between a checking account and a savings account really comes down to understanding how each account type functions and how it will benefit you,” said Collins, the professor at Endicott College.


Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
  1. Federal Deposit Insurance Corporation, " Are My Deposit Accounts Insured by the FDIC? " Accessed March 13, 2023.
  2. Federal Deposit Insurance Corporation, " Bankers Resource Center - National Rates and Rate Caps ." Accessed April 17, 2023.
  3. Federal Trade Commission, “ Lost or Stolen Credit, ATM, and Debit Cards .” Accessed March 13, 2023.
  4. Federal Register, " Regulation D: Reserve Requirements of Depository Institutions ." Accessed March 13, 2023.
  5. National Credit Union Administration, " Deposits Are Safe in Federally Insured Credit Unions ." Accessed March 13, 2023.
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