Checking vs Savings Account: What’s the Difference?

When managing your money, you often hear about two accounts: checking and savings. Each serves a different purpose — checking accounts are great for everyday transactions with easy access to funds, while savings accounts are ideal for setting aside money for short-term goals and earning interest. Generally, it offers more interest than checking accounts.

Understanding the difference between checking vs savings accounts makes choosing the right account for your financial needs easier.

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What is a checking account?

A checking account allows you to deposit, withdraw, pay bills, accept payments, transfer funds, or make purchases with no set limits. This is useful if you need an account for daily transactions. However, unlike savings accounts, most checking accounts don’t provide interest.

Benefits of a checking account

One of the primary benefits of a checking account is convenient access to funds since you can withdraw from ATMs, use a debit card for in-store and online purchases, and write checks for payments. Setting up automated bill payments can also help you avoid missed payments. In addition, checking accounts offer protection from accidental overdrafts and are covered by FDIC insurance. See our article on overdraft protection to learn how it works.

Checking account features

• Debit card
• Check writing
• Bill pay
• Direct deposit
• Overdraft protection option
• ATM access
• Waivable monthly service fees (depending on balance)
• FDIC-insured for security
• Online and mobile banking

What is a savings account?

A savings account is a basic bank account where customers deposit their funds and earn interest over time. These accounts are low-risk, FDIC-insured (or NCUA-insured for credit unions), and typically offer higher yields than checking accounts. Plus, they’re a good way to stash money for emergency funds or an upcoming trip since debit cards are not typically provided.

Benefits of a savings account

Savings accounts offer security since these are covered by FDIC insurance or NCUA insurance for up to $250,000 per depositor, institution, and account ownership. You can earn interest from a savings account, which is rarely offered by checking accounts in traditional banks. In addition, you can control your spending since limits

Up to six monthly withdrawals or transfers per Federal Reserve regulation but this depends on the provider.

are imposed on withdrawals and transfers.

Savings account features

• Interest on your balance
• Six withdrawals or transfers monthly
• Minimal or waivable monthly service fees
• FDIC insurance protection
• Online and mobile banking

What’s the difference between checking and savings accounts?

Checking and savings accounts differ in purpose, fees, interest rates, withdrawal limits, and accessibility. See the table below highlighting the difference between checking and savings accounts.

Access to funds of checking account vs savings account

• Checking account: You can make unlimited withdrawals and deposits through checks, a debit card, ATMs, and online banking. It’s super flexible and convenient for handling everyday transactions.
• Savings account: You’re usually limited to six withdrawals or transfers per month (thanks to Federal Reserve regulations), though some banks may be a little more lenient. This helps you save by limiting access to your money.

Interest in checking account vs savings account

• Checking account: Most checking accounts don’t offer interest, but it’s usually pretty low ( around 0.01% to 0.5%) if they do. You might also need to maintain a higher balance to avoid monthly fees.
• Savings account: Interest rates on savings tend to be higher than on checking accounts. Depending on the provider, they can range from 0.1% to 0.5% for traditional savings accounts and up to 4.0% for higher-yield savings accounts.

Before choosing a business bank, it is essential to review the interest rates offered by different providers for checking and savings accounts. Check out our list of the best online business bank accounts, where some providers offer great interest rates.

Fees of checking account vs savings account

• Checking account: You can expect monthly service fees, usually ranging from $5 to $30. These may be waived if you meet certain criteria, like maintaining a minimum balance. You may also encounter fees on overdrafts or ATM withdrawals at out-of-network machines. Consider opening an account from our list of best free business checking accounts to save on fees.
• Savings account: Plenty of savings accounts, especially with online banks, don’t charge monthly service fees. However, if you exceed the six-transaction limit, you could face an excess withdrawal fee.

Insurance of checking account vs savings account

Both checking and savings accounts are FDIC-insured (or NCUA-insured for credit unions) up to $250,000 per depositor, institution, and account ownership. This keeps your money safe in case of a bank failure.

Check out our guide on how FDIC insurance for business accounts works. If you have significant funds and need more FDIC protection, consider opening a sweep account.

Pros and cons of checking accounts

Pros

• Unlimited transactions
• Low or no minimum balance requirements
• Easy access to funds
• Safety net for accidental overdrafts

Cons

• Low or no interest
• Potential fees on nonnetwork ATM withdrawals
• High fraud exposure

With a checking account, you won’t need to worry about tracking your number of transactions since many offer unrestricted withdrawals and deposits. It also has low or no minimum balance requirements. Additionally, your funds are easily accessible, and you can enroll in overdraft protection in case you accidentally overdraw your account. However, the drawbacks are low or no returns, possible ATM fees for withdrawing out-of-network, and increased exposure to fraud.

Pros and cons of savings accounts

Pros

• Fee-free most of the time
• Lower account balance requirements
• Earns interest more than checking accounts

Cons

• Low interest rates for traditional savings
• Limit of six withdrawals or transfers monthly
• No debit card is issued

Savings accounts are low-risk options backed by FDIC or NCUA insurance in case of a bank failure. Fees are minimal, and balance requirements are low. Compared to checking accounts, savings accounts earn more interest. However, interest rates can be low for traditional savings accounts. Access is also limited, with no debit card provided and a monthly restriction of six withdrawals or transfers.

When to use a checking account vs a savings account

A checking account is best if

• You want easy and unlimited access to your funds for daily transactions.
• You want to avoid high initial deposits or balance requirements.
• You prefer the convenience of online bill pay, debit cards, and writing checks.

See our roundup of the best small business checking accounts for your financial needs.

A savings account is best if

• You’re trying to set aside money for short-term goals like an emergency fund.
• You want to earn some interest on your savings.
• You’re okay with limited access to your money.

Check out our list of the best business savings accounts to pick what fits your needs.

Why use both checking and savings accounts?

You don’t have to choose one account over the other. Using both accounts together is an excellent way to manage your money.

Both types of accounts let you:

• Organize your finances: Use your checking account for everyday spending and your savings account for things like an emergency fund or upcoming vacation.
• Grow your funds: While your savings account earns interest, your checking account can help you earn cash back rewards through debit card purchases.
• Access your money easily: Your checking account gives you quick access to your daily needs, while your savings account can help you build up your cash for a goal and withdraw the money when you need it.
• Benefit from no-fee transfers: You can set up automatic transfers from your checking account to your savings account to avoid inter-bank transfer fees. Linking your accounts also helps you avoid overdraft fees.

By opening both a checking account and a savings account, you can maintain easy access to your funds for your day-to-day transactions while growing and protecting your savings.

Before deciding to open a business bank account, it’s important to evaluate your financial goals and fund accessibility needs.

Factors to think about when deciding between savings vs checking accounts

Before choosing to open a savings vs checking account, consider the following:

• Your reason for opening a bank account: Are you saving for something specific, or do you need access to everyday spending?
• If you seek to earn interest: Do you want to earn interest from your account? If yes, consider opening a high-yield savings account.
• How often will you access your account: I suggest choosing a checking account if you need frequent access.
• What fees are involved: Checking accounts may come with monthly fees, including overdraft and ATM fees. Savings accounts tend to have fewer fees.
• Minimum balance requirements: Check the maintaining balances required for both and ensure you can meet them monthly.
• If you want ATM access: Savings accounts typically don’t offer ATM cards, so make sure you are okay with limited ATM access.
• If you prefer overdraft protection: Only checking accounts offer an option for overdraft protection to cover transactions when you accidentally exceed your account balance.

Tips for checking and savings accounts

Checking accounts

1. Make sure you meet the minimum balance requirements to qualify for monthly service fee waivers.
2. Look for a bank with a wide ATM network access to save on fees.
3. Enroll in overdraft protection to avoid paying steep overdraft fees.
4. Consider opening a checking account with debit card cash back rewards or a welcome bonus offer.
5. Set up alerts to receive notifications about low balances, large transactions, and upcoming bill payments. This will also reduce the risk of fraud.

Savings accounts

1. Pick a high-yield savings account to earn the maximum interest rate.
2. Automate your savings by linking them to a checking account.
3. Avoid withdrawing from your savings account by maintaining a separate checking account for regular expenses.
4. Choose banks that offer a welcome bonus.
5. Let your interest accumulate instead of withdrawing it to grow your savings.

Frequently asked questions

Is it better to have a checking or savings account?

It depends on your financial needs. A checking account is the best option if you want to pay bills, make purchases, or manage your money daily. I recommend opening a savings account if you want to save for a future goal and earn some interest.

Can I use my savings account as a checking account?

Not really. Since savings accounts limit how many withdrawals or transfers you can make each month, exceeding this limit can incur fees. For daily transactions, you’ll need a checking account.

How do I know if my account is checking or savings?

A checking account usually comes with a debit card and checkbook, whereas savings accounts don’t typically offer those features.

Which type of bank account is best for daily transactions?

A checking account is best for daily transactions because it gives you the flexibility to access your funds whenever you need them.