Checking vs. Savings Accounts: What's the Difference?
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Difference Between Checking & Savings Accounts

  • Checking accounts are designed for everyday financial transactions. They provide a secure place to store your money while giving you the flexibility to deposit and withdraw funds frequently.
  • Savings accounts are intended for longer-term money storage. They usually offer higher annual percentage yields (APY) in exchange for limited withdrawals.
  • The main differences are that checking accounts offer more frequent access to funds, have lower balance requirements, and often include overdraft protection, while savings accounts earn higher interest rates, come with withdrawal limits, and are often used for specific savings goals.
  • When looking to open an account, it’s important to consider the withdrawal limits, APY, banking access and other factors.

Whether you’re just dipping your toes into the world of personal finance for the first time or you’re interested in restructuring your banking setup, it’s vital to understand everything about the checking account vs savings account debate.

Does minimum balance matter? Are online-only accounts better? How is your APY calculated and could it shift when you least expect it? From the ins and outs of debit cards to a behind-the-scenes look at interest rates, we’ve got everything you need to know about your future bank account.

Our top picks for savings accounts

Checking vs savings accounts

This table compares the main differences between checking and savings accounts.

Feature Checking Account Savings Account
Purpose Short-term money storage with the ability to make frequent deposits and withdrawals Long-term, lower-access interest-bearing account that helps you save and grow your money
Pays interest? Sometimes Yes
Average interest rate 0.70% 0.45%
ATM access? Almost always Sometimes, but limits and fees are likely
Withdrawal limit None Typically six per month, exclusive of in-person and ATM withdrawals

The average interest rates are supplied by the FDIC..

What is a checking account?

Checking accounts are intended for everyday use.

The idea is to give people a safe place to stow their money, with account holders able to deposit and withdraw funds as often as they want.

Checking accounts come with a number of features to facilitate ready access. You’ll likely get a debit card that can be used in stores, online or at an ATM. Most banks now also have a mobile app through which you can make digital money transfers, pay bills, check up on ACH transfers and direct deposits and even scan and deposit checks.

There are also premium checking accounts that offer a range of perks to users able to maintain higher balances and willing pay higher monthly maintenance fees. Premium accounts often carry benefits such as low or no ATM fees, free checks, better interest rates, discounted lending rates and rewards based on loyalty and other account-related factors.

Our top picks for checking accounts

What is a savings account?

Savings accounts focus on longer-term money storage, typically exchanging the freedom of frequent withdrawals in favor of a higher annual percentage yield (APY).

You can use your savings account to put money aside for a rainy day or to save for a specific purpose such as a down payment on a new house, a vacation or retirement. Use a savings calculator to set a budget.

Because the funds in a savings account aren’t intended for everyday use, there are usually limits on how often you can access your money. During the COVID-19 pandemic, the U.S. Federal Reserve changed recommendations for saving account withdrawals, suggesting financial institutions upgrade from the previously permitted six transactions per month to allow unlimited withdrawals. Banks and credit unions are not required to follow the suggestion, however.

Traditional savings accounts

Traditional savings accounts are the most common type of savings account. They have a lower APY or low-yield interest rates. They’re usually free, especially if you also get a checking account with the same bank.

Here are the best banks offering traditional savings accounts:

High-yield savings accounts

High-yield savings accounts offer a much higher interest rate than traditional savings accounts. Sometimes they require a minimum initial deposit and balance in order to be eligible for high APY. It’s often a good idea to go for this type oif account if you already have some savings aside, at least $5,000 or more to get started. This means you’re able to meet the minimum deposit balance at all times. Keep in mind that some banks also have restrictions in withdrawing money and may have a fixed term.

Best high-yield savings accounts:

How are checking and savings accounts similar?

People often focus on the differences between these two types of accounts, but there are also many similarities.

Here are few things they have in common:

What’s the difference between checking and savings accounts?

Checking accounts are considered transactional accounts that are more likely to:

Savings accounts are interest-bearing accounts that are more likely to:

What do I need to open a checking or savings account?

It’s relatively easy to open a savings account or checking as long as you can gather some basic paperwork and have enough cash on hand (or in another account) to meet the minimum deposit requirement.

1

Personal information and documentation

You’ll most likely need a government-issued ID and/or Social Security card as well as proof of address (e.g. a utility bill or lease agreement), a phone number and an email address.

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2

Money

Check with your bank or credit union to make sure you have the funds to meet the initial minimum deposit. This is necessary to launch the account and will also help save on fees that you can incur with certain accounts which have minimum balance requirements.

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3

Application

Depending on whether you opt for a bank with brick-and-mortar locations or an online-only institution, you’ll need to either fill out a paper application and turn it in personally or complete an application online and submit it digitally.

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Are interest rates fixed on savings and checking accounts?

The APY on interest-bearing accounts is almost always variable, meaning it can change at any time.

The Federal Reserve sets benchmark rates that act as industry standards. The Fed may adjust its rates multiple times each year – rates jumped seven times in 2022 and on three occasions between January and June 2023. As industry standards change, banks and credit unions tend to follow suit, so the rate you had when you opened your account may change sooner than you think.

Financial institutions can also change a variable APY at their own discretion. For example, an online bank that’s focused on attracting new customers (or one that simply needs more depositors) may hike interest rates on savings accounts to generate more leads.

There are some types of saving accounts that offer fixed rates, too, such as traditional savings accounts (as opposed to high-yield options), money market accounts (MMAs) or certificates of deposit (CDs).

Could I lose my money in a checking or savings account?

If you’re worried about money in your checking or savings account being “lost” due to a market collapse or your bank going out of business, don’t panic.

Both types of accounts are safe. As long as your account is FDIC insured, you will be protected on up to $250,000 per person, per bank.

Otherwise, you can only lose money if your fees outweigh your deposits. Imagine you open a checking account with $200. Things are going well until you incur an unexpected expense and $205 worth of bills go through all at once. Your bank offers overdraft protection, but that comes with a fee of $25. Now your balance has dropped from $200 to -$30. This mistake is easy to avoid as long as you keep an eye on what you’re putting in your account and what’s scheduled to come out. Setting up your savings account as your overdraft safeguard can also help, and many institutions facilitate this setup for free.

Checking vs. savings account: Which is right for you?

Choose a checking account if you need easy access to your money and the ability to manage daily expenses.

Because access is arguably the biggest difference between checking and savings, opting for a transaction-based account ensures you can withdraw money and cover expenses without worrying about hitting transaction limits and racking up fees.

Choose a savings account if you’re more interested in making your money work for you – even if that means accessing funds less frequently. Many people have both types of accounts, using one for daily needs and the other for long-term savings goals.

How to find the best checking account

To find the best checking account, look for these features:

How to find the best savings account

To find the best savings account, look for these features:

Benefits of having both a checking and savings account

Having both types of accounts means you can access your money and capitalize on interest at the same time.

You can:

Should I have my checking and savings accounts at the same bank?

Opening checking and savings accounts at the same bank can be convenient, and you may even save on transfer fees as you funnel money from one account to the other. You may also find better terms if you open a checking account at one bank or credit union and then open your savings account at a bank that offers a higher APY.

Many banks now offer mobile apps that allow stress-free multi-bank transfers. You may have to pay a fee, however, if you need to send money from bank A to bank B. Still, transactions are typically processed quickly and it may be worth the occasional fee to reap the benefits of an exponentially higher interest rate. This is something you’ll have to factor in when you make your decision.

FAQ

What’s the difference between a savings and a checking account?

The main difference between the two bank account types is their purpose. Checking accounts are intended for easy access and short-term money storage. Savings accounts are intended for longer-term money storage with a focus on generating interest over day-to-day access.

Is a savings or checking account better?

Both checking and savings accounts have their pros and cons, but neither is necessarily better than the other. It’s a matter of which better serves your purpose. Many people have both a checking and savings account, so they can access money when they need to and grow their nest egg at the same time.

How much money should you have in your checking account?

According to the Federal Reserve System, the average American had $10,545 in their checking account as of 2019. However, the exact amount you need is based on your personal finances and age. Generally speaking, you should have enough in your checking account to cover your bills as well as a cushion in the form of a savings account to allow for unexpected expenses.

Which type of savings account earns the most interest?

High-yield savings accounts offer some of the best interest rates available. Look for high-yield savings accounts from online banks and you may score even better rates thanks to the bank’s lower overhead.

About the Author

Sarah Stasik
Sarah Stasik Personal Finance

Sarah Stasik is well versed in personal finance thanks to her previous role as a Revenue Cycle Manager for a Fortune 500 healthcare company. Using her inside knowledge and expertise, Sarah often covers topics ranging from insurance and the economics of private healthcare to personal finance and small business management.

With more than a dozen years of writing experience, Sarah has tackled niches that range from technical advances in fintech to personal budgeting challenges. She has covered topics such as insurance and the economics of private healthcare, small business management and accounting, and credit and savings. Her writing focuses on making complex or seemingly daunting financial topics more accessible and providing helpful and relevant resources for readers.

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