Savings Accounts vs. Checking Accounts: What’s the Difference?

It’s more than just interest rates

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Savings and checking accounts are popular options for keeping money safe at a bank or credit union, but they're used for different reasons. You typically use a savings account to hold money aside for a future goal, while a checking account holds money for day-to-day expenses.

These account types have other differences, such as how much interest you earn on the balance, how you can access the funds, and whether you face limits for withdrawals. Let’s look at the features of both bank account types and weigh the pros and cons.

What’s the Difference Between Savings Accounts and Checking Accounts?

  Savings Account Checking Account
Purpose Save for a future goal Pay for everyday transactions
Funds Access More limited More diverse
Monthly Withdrawal Limits Possible None
Interest Earned Averages 0.08% as of June 21, 2022 Averages 0.03%, but may be none

Purpose

A savings account provides a place to store your money for a future goal rather than use it to pay your bills and make other purchases. For example, you might open a savings account for an emergency fund or down payment for a major purchase. You could even open one for your child so they can use the money for college. To make it easy to reach your savings goal, you might set up recurring deposits from your checking account.

On the other hand, you’d use the funds in a checking account for regular needs and make transactions in various ways. You could withdraw cash from a branch or ATM, or you could write a check to mail to a bill collector. You could also use your debit card in a similar way you use your credit card, or you could use online payment options.

You might, for example, use your checking account to have your monthly mortgage payment deducted, pay utility bills, buy groceries, or order items online.

Funds Access Methods

Savings accounts generally are less flexible with the ways you can access your funds because they are intended to store money. Usually, you’ll visit a local branch to make deposits and withdrawals. However, you could also have money directly deposited or transferred between linked accounts.

Some banks also offer an ATM card that allows you to get cash outside bank hours and at more locations than branch locations. However, you usually won't receive a debit card or checkbook.

Checking accounts offer more ways to conveniently use your funds. You can choose to bank in person or use online transfers as you can with savings accounts. However, you also can get a debit card for everyday purchases and ATM transactions. In addition, you can request checks and take advantage of online pay bill services offered to checking customers.

Banks typically impose a limit on how much you can withdraw with your debit card from an ATM in a day. This is both because ATMs have limited cash and to protect your account if a thief gets access to your card and PIN.

Both types of accounts may feature convenient online banking options that vary by institution. For example, you might deposit checks using your bank’s mobile app. Banks may also partner with peer-to-peer payment services such as Zelle to make it easy to send money to others.

Monthly Withdrawal Limits

Financial institutions can place limits on the number of monthly withdrawals you can make from your savings account without a fee. The limit may apply to all withdrawals or just certain types, such as online and phone transactions.

For example, if your bank allows six savings account withdrawals each month, you might have to pay a fee of $5 or more for each additional withdrawal. However, your bank might limit the fees to a certain amount. You usually won’t encounter such fees with a checking account since the bank expects you to conduct frequent transactions.

Interest Earned

You get paid interest on your savings account since your deposits allow the bank to make loans and charge interest with your funds. The rate is usually variable and depends on market rates, the financial institution, account type, and other factors. Basic savings accounts usually have lower rates, while high-yield savings accounts, such as those with many online banks, can offer higher rates.

Checking accounts typically pay lower rates than with a savings account, and some offer no interest at all.

Make sure your interest-bearing account doesn’t have a monthly maintenance fee that outweighs the interest earned.

Which Is Right for Me?

A savings account would be more ideal than a checking account if you’re saving for long-term goals because it provides a higher interest rate. However, keep in mind that making frequent withdrawals could result in fees, so they are less ideal for holding funds for daily expenses. And you may have fewer ways to access your funds.

You might prefer a checking account for funds you use regularly because it has no monthly withdrawal limits. If you want to write checks and use a debit card, you’ll want a checking account. Keep in mind that checking accounts often have lower interest rates than savings accounts, so they are less ideal for long-term goals. Consider shopping around and comparing rates and terms.

A Best-of-Both Worlds Option

Many people have both types of bank accounts. For example, you might open a checking account to receive your pay via direct deposit or pay bills with your debit card. Then, you might open a high-yield savings account to both earn interest.

For the best return, you could keep most of your funds in your savings account with enough for regular expenses in your checking account. That way, you’re earning a higher rate of interest on your savings and keeping your funds for short-term needs more accessible.

The Bottom Line

Consider using a savings account for money you won’t use frequently. You’ll earn a better interest rate and your funds will grow more quickly. On the other hand, a checking account will serve you better for frequent spending. A combination of the two account types may be your best choice for meeting your needs for saving and spending.

Frequently Asked Questions (FAQs)

What does a checking or savings account cost?

Getting started can involve a minimum deposit such as $25 or $100. Both savings and checking accounts can also have ongoing monthly maintenance fees that might be waived if you maintain a minimum balance, have a connected credit line, or meet other criteria. In addition, you can face fees for overdrafts, ATM use, wire transfers, account closure, or excess monthly savings account withdrawals.

How do I get a checking or savings account?

You can open a checking or savings account at most banks and credit unions online or in person. First, research account fees, features, and terms. The application process usually requires your personal information, identification card, and funds for opening the account.

Is my money safe in a checking or savings account?

Many institutions feature deposit insurance through the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA). This means your savings or checking account funds would be safe in case of a bank failure. The coverage applies to the first $250,000 per depositor and per account at the credit union or bank.

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