Note: This article is part of our Basic Banking series, designed to provide new savers with the key skills to save smarter.
Everyone needs a safe place to store their money, but deciding which type of bank account to open can be confusing. Should you open a checking account with a debit card that you can use for everyday purchases? Or is it better to consider a savings account, where you can build a rainy day fund?
While there’s no one-size-fits-all solution that works for everybody, learning the differences between checking and savings accounts can help you find the best solution for your needs.
From features and benefits to fees and limitations, here’s what you need to know about the differences between a checking vs. savings account.
Checking vs. savings account
The debate of getting a checking vs. savings account comes down to what you’re planning to do with the money you deposit.
- Savings accounts are best used as a place to stash away money, either for a specific goal (like a vacation) or a general emergency fund.
- Checking accounts, on the other hand, are best used for everyday spending needs, like writing checks, paying bills and making purchases.
Both allow you to store your money at a bank and access it when you need to.
|Checking Accounts||Savings Accounts|
|Main purpose||Daily spending||Saving and growing money|
|Withdrawal limits||Few restrictions; however, some banks limit the amount you can withdraw from an ATM each day||No more than six withdrawals per month (however, withdrawals and transfers you make by mail, at an ATM or in person at the bank don’t count toward this limit); you may otherwise be charged an excessive withdrawal fee|
|Interest earned||The average rate is .06%||The average rate is .09%.|
|Minimum balance requirements||Varies by bank||Varies by bank|
|Common features||Checks, debit cards, automatic bill payments, mobile banking||Mobile banking, automatic deposits, ATM card (or link to debit card)|
|Possible fees||Overdraft, monthly maintenance, low balance, wire transfers, out-of-network ATM withdrawals, check printing, returned deposits, printed statements, foreign transactions, debit card replacements||Monthly maintenance, excess withdrawal, out-of-network ATM withdrawals|
|FDIC insured?||Yes, up to $250,000 per person, per bank, and per deposit type at FDIC-insured banks and savings associations||Yes, up to $250,000 per person, per bank, and per deposit type at FDIC-insured banks and savings associations|
As you can see, checking and savings accounts each have unique purposes, limitations and benefits. Using the right account can help you avoid fees and potentially grow your money.
Checking accounts can be useful tools to make regular purchases, pay bills and deposit your paycheck. Before you open one, get to know the pros and cons of checking accounts.
Many ways to access money: Checking accounts are typically set up with everyday spending in mind. Banks don’t limit your transfers, and give you a variety of ways to spend money from your checking account.
“You can have many types of transactions on a checking account, including writing checks, debit card usage, online banking usage and automatic drafts,” said Ken Tumin.
Get direct deposit: When payday comes around, who doesn’t want to spend some of their hard-earned money? A checking account can accept direct deposit from your company’s payroll. Rather than making a trip to the bank to deposit a paycheck, your money will go straight to your account and be available for use in one business day or immediately.
Opportunity to earn rewards: Rewards aren’t just for credit card customers—they’re also available with some checking accounts, too.
“A company called Kasasa helps community banks and credit unions set up rewards checking accounts for their customers. They offer rewards like high yield and cash back when you use a debit card,” said Ken.
ATM fees: It doesn’t usually make financial sense to pay a fee to get money from an ATM. However, if you only have access to out-of-network ATMs in a particular location, you might incur fees from the ATM and your bank to withdraw cash.
Overdraft fees: If your account goes into the negative — say because you wrote a check for more money than you had — you may need to pay an overdraft fee. These fees can be hefty, at a median of around $34 each, according to the Consumer Financial Protection Bureau.
“People who tend to have a low balance and are often on the edge of overdrafts should definitely consider the overdraft fees on a checking account,” Ken advised.
Minimum balance requirements: Some banks require that customers maintain a minimum balance. The minimum balance varies widely by institution, so ask the bank what it requires for your type of account.
Little to no interest: If you’re hoping to earn money from interest on a large deposit, a checking account might not be the best option for you. Some checking accounts pay very little interest, if any at all.
Many people rely on savings accounts when they want to stash away money for a major purchase, like a car or home, or if they’re trying to accumulate wealth. FDIC-insured savings accounts are a safe place to store money until you’re ready to spend it.
Grow your money: When you deposit money into a savings account, the bank uses that money to provide loans to other customers. The bank rewards you for lending them your money by paying you interest on your balance, which can help your money grow over time.
Protect your savings: Savings accounts at reputable banks and savings associations include insurance from the Federal Deposit Insurance Corporation (FDIC). That means the amount you deposit into your savings account (up to $250,000) is protected, even if the financial institution fails.
Avoid overdraft fees: Some banks let customers link their savings account with their checking account to reduce the likelihood overdraft fees. If you accidentally make a debit card purchase for an amount that’s greater than your checking account balance, it will transfer some money from your savings account to cover the difference — and help you avoid a hefty overdraft fee.
Withdrawal limits: Due to regulations from the Federal Reserve, you can only make a maximum of six withdrawals or transfers from your savings account each month (although, you may be able to make additional transactions at an ATM, by mail or in a bank branch without penalty). Some banks will impose even stricter rules on savings accounts, limiting customers to just a few transactions a month.
Less accessible: If you open a savings account at an online-only bank, an electronic fund transfer might be the only way you can withdraw money, which makes it less accessible than a many checking accounts.
“You need to check if it’s free to initiate an EFT and if there are small limits. I’ve seen limits as low as $2,000 per transfer,” said Ken.
Minimum balance requirements: Some banks require customers to maintain a minimum balance in their savings accounts. If you don’t meet that requirement, you might need to pay a fee.
Fees are one of the most important things to consider when deciding between a checking vs. savings account. Banks tend to include more fees in checking accounts because the high volume of transactions requires more administration to manage. The types of fees you may incur will vary by bank and type of checking account.
“Look for a checking account with low fees, especially in the activities you care most about,” said Ken. “For example, if you’re a big ATM user, then fees associated with ATMs will be very important.”
You should also watch out for overdraft fees on a checking account. Overdraft protection is sometimes an option if you link your checking account with your savings account.
As for savings accounts, look for potential excess withdrawal fees. These charges happen when you make more than a certain number of withdrawals a month. Checking accounts don’t typically have these types of fees.
Finally, both checking and savings accounts may come with a monthly maintenance fee. Banks often offer ways you can get this fee waived, such as having a direct deposit, maintaining a minimum balance or enroll in school.
One of the biggest benefits of opening a checking or savings account is the opportunity to earn interest. Interest-bearing accounts can help your money grow just by storing it at the bank.
Interest rates are generally higher at online banks. They don’t face the same overhead costs as retail banks with brick-and-mortar locations, so they can pass those savings along to their customers.
Checking accounts tend to offer lower interest rates than savings accounts. On average, banks in the U.S. offer 0.06% interest in checking accounts, but you may be able to score a better deal by shopping around. Compare checking accounts to find a rate that works for you.
“Quite a few community banks and credit unions offer high-yield checking accounts that are higher than what you can get with an online savings accounts. These usually come with some catches, though, like debit card usage requirements, online banking usage and monthly direct deposit,” said Ken.
Choosing between a checking vs. savings account
There’s a lot to consider between a checking vs. savings account. From potential fees and limitations to interest rates and special features, each offers its own distinctive benefits and disadvantages.
“A checking account might be the entire focus at the beginning, and it might not pay to worry about a savings account until you’ve accumulated some savings,” said Ken.
And if you can’t decide between checking and savings, here’s some good news: you can open both types of accounts, often at the same institution — this can simplify your banking, Ken added.
When it comes to a checking vs. savings account, there’s no right or wrong choice — only you can decide which type of account can help you meet your goals.