Checking vs Savings Account: What's the Difference?

A checking account is for everyday use, while a savings account has less flexibility but higher interest rates. Read on to learn more.

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• Difference Between Checking and Savings Account
  
• Features of a Checking Account
  
• Features of a Savings Account
  
• Detailed Comparisons
  
• Why You Should Have Both
  
• How Much Should You Have In Your Bank Accounts
  
• Current Checking and Savings Promotions

Difference Between Checking and Savings

Banks offer two basic types of deposit accounts for your money: checking and savings.

Checking accounts are designed for your everyday banking activities and transactions, such as making purchases, paying bills, etc. Therefore, you get free access to your funds whenever you need to use them.

Savings accounts are intended to let your funds grow over time. Often they offer higher interest rates to help your money grow. You're supposed to be saving money so you're limited to only a certain number of withdrawals each month.

Here's a comparison chart to understand the main differences:

Let's start with a look at the different features of checking and savings accounts and then go on to explain in more detail.

Features of a Checking Account

A checking account is designed to be your everyday spending account. Think of it as a digital wallet. Here's what you get.

• Flexible money access. The money in your checking account is meant to be spent, not saved. You can freely use the money in your account at any time with no limits.

• Debit cards. You'll get a debit card, which allows you to make ATM withdrawals or purchase items directly using the funds in your checking account.

• Check writing. Banks usually provide checks (sometimes for a small fee).

• Online bill pay. Most banks also offer unlimited free online bill pay. You can pay mortgage, credit card bills, utilities, student loans, etc., using the money you keep in your checking. You can set up automatic recurring payments or make one-time payments.

• No limits. Checking accounts have no monthly withdrawal or transfer limits.

Checking accounts, however, offer little or no interest. Usually, it's best to only keep enough money for your monthly expenses, or what you intend to spend in the immediate future. If you have extra, it's best to save them in an interest-bearing savings account.

Features of a Savings Account

Savings accounts are a place to save your money and have it grow over time. It's a great place to store an emergency fund and savings for your goals.

Here's what you can expect.

• Higher interest rates. Savings accounts will typically offer higher interest rates than checking accounts. Banks reward you for keeping your money right where it is, rather than moving it around or spending it on bills or daily purchases.

• No caps on deposits. You can add to your balance as much as you like. You can also check your statement every month and see how much interest is accruing.
  Read: Best Online Savings Accounts with High Interest Rates
  

• Limits on withdrawals and transfers. The federal government limits the number of withdrawals and transfers on savings accounts to 6 per month. If you go over that amount, banks will usually charge varying (and sometimes steep) excess withdrawal fees.

• Limited access. You can't directly use the money in your savings. For example, your savings account will not allow you to pay bills directly from your account. For that, you'll need to transfer money into a checking account.

  Some banks may offer an ATM card to allow withdrawals from your savings. But unlike a debit card, these cannot be used to make purchases. Others require you to visit one of their branch locations to take out your money.

Detailed Comparisons and Differences

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Now let's break down the differences between checking and savings accounts in more detail.

Usage & Restrictions

Checking accounts are supposed to be for your daily spending and purchases. So you have free unlimited access for activities like:

• Making transfers in and out of the account
  
• Making purchases on your debit card
  
• Withdrawing money at ATMs
  
• Paying bills
  
• Checkwriting

Of course you can only use up to the amount of money you have in your account, or else overdraft will occur.

Savings accounts are meant to be a safe place for your savings. So the intention is to keep your funds in the account until you need to use them (like if you have an emergency or you're ready to make a house down payment).

You're not supposed to be constantly withdrawing your funds, so the federal law limits you to just 6 withdrawals/transfers per month from a savings account.

Both checking and savings accounts have no limit to the number of deposits you can make.

Interest Rates

Checking accounts typically offer no interest, since funds are constantly moving in and out as you use them.

However, some online banks offer interest on checking balances as they have less overhead and often pass the costs onto customers. Check out these online checking accounts.

Most savings accounts will offer interest since the purpose is to grow your money. However, the big national banks usually have very poor (practically negligible) interest rates. If you want a better return on your savings, look to high-yield online savings accounts.

Account Fees

Account fees largely depends on the bank. Most big national banks (such as Chase, Wells Fargo, Bank of America) charge monthly service fees on checking accounts. You can waive these fees when you meet the required banking activity, such as a minimum amount of direct deposit per month or keeping a certain account balance. However, this essentially limits your use of funds if you need to maintain a balance.

Checking accounts also will have other account fees, such as overdraft fees, out-of-network ATM fees, wire transfer fees, stop payment fees, etc.

Online banks usually don't impose service charges on their checking accounts and have fewer account fees as well. Check out some of the best free online checking.

For savings accounts, many larger banks also impose a service charge unless you maintain a certain balance. Similarly, online banks usually will offer free savings accounts. The biggest account fee to be aware of on savings accounts is the excess withdrawal fee.

Bill Pay and Checkwriting

Only checking accounts allow you to make payments out of them, by paying a bill online or writing a check. Just about all banks will allow you to set up online bill payments for things like utilities, phone provider, mortgage, student loans, credit cards, etc. You can set up auto-recurring payments or just a one-time payment.

Savings accounts generally don't allow you to bill pays and write checks, since you have limited transactions and the purpose is for saving money. If you really want to pay something from your savings, you'd have to first transfer the money out to a checking account.

Why You Should Have Both

Having both a checking AND savings account is essential for your personal finance management.

• You need a checking account for everyday transactions, like purchases and bill pay.

• You need a savings account for emergencies and your goals, whether that's a new car, your first home, or a vacation. A separate savings account will also help you keep track of that money and make sure you don't accidentally spend it.

Many banks offer linked accounts. Some even waive their monthly fees as an incentive for opening both. You'll get a debit card that allows access to each account from affiliated ATMs, which makes withdrawals easier.

Keeping a linked checking and savings may also spur you on to better savings habits.

You can schedule automatic transfers from your checking account into savings. Or simply transfer funds when your checking account balance reaches a target level.

But be sure to leave enough money in your checking for outstanding bills and expenses! Also make sure you understand the minimum balance requirements of both.

How Much Should You Have In Your Bank Accounts

In general, for a checking account, we recommend that you only keep what is needed for 1 month's worth of expenses plus some cushion. This means keep what is needed for your rent/mortgage, utilities, other payments like car loans, everyday spending, and credit card payments. Add in about 25-50% more as a cushion to prevent overdrafts and any unusual larger purchases.

If you have additional cash, they should go into the savings account where you can earn more interest. We recommend having enough in your savings account to cover 3 - 6 months of expenses. This way, you'll be covered if the worst happens and you lose your job. You'll have enough to stay afloat for a while.

It's also important to have these savings for big emergencies, like if your roof collapses or your car breaks down.

What Experts Say

CreditDonkey assembled a panel of industry experts to answer readers' most pressing questions.

Here's what they said:

Checking Accounts Promotions

Member FDIC

CIT Bank Savings Connect - 0.50% APY

Learn More

• Earn a competitive high yield savings rate with access and convenience features of an eChecking account.
• Earn up to 0.50% APY on Savings Connect and 0.25% APY on eChecking.
• Savings Connect is a tiered interest rate account dependent on the account holder opening a linked qualifying eChecking concurrently and makes periodic qualifying deposits.
  • Base Tier: (0.42% APY, 0.399% Interest Rate) A minimum qualifying deposit of $200 is not deposited each month into the linked eChecking or the eChecking account is closed.
  • Upper Tier: (0.50% APY, 0.499% Interest Rate) A qualifying deposit of $200 or more is deposited into the linked eChecking account each month.
  • APY assumes a qualifying deposit of $200 or more is made to the linked eChecking account each month.
• Minimum of $100 for both the Savings Connect and eChecking to open ($200 total).

Member FDIC

HSBC Premier Checking - $450 Welcome Deposit

Get $450 Welcome Deposit

Expires 8/31/2021

• Get a $450 Welcome Deposit for eligible new customers who open a new HSBC Premier checking account and complete the following qualifying activities.
• Open your new HSBC Premier checking account online by August 31, 2021; and
• Make recurring monthly Qualifying Direct Deposits totaling at least $5,000 from a third party to your HSBC Premier checking account(s) for 3 consecutive calendar months from the second full calendar month after account opening.
• You will automatically receive the $450 Welcome Deposit in your new HSBC Premier checking account approximately eight weeks after completing all qualifying activities. It's that simple.
• Deposit products are offered in the U.S. by HSBC Bank USA, N.A. Member FDIC.

Acorns Spend: $75 Bonus

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Expires 12/31/2021

• Setup Acorns Spend as your direct deposit method with your employer
• Receive 2 direct deposits of at least $250 / deposit
• $75 bonus will be deposited into your Acorns account within 45 days

Savings Accounts Promotions

Member FDIC

CIT Savings Builder - Earn 0.40% APY

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Earn up to 0.40% APY. Here's how it works: Maintain a minimum balance of $25k OR make at least a $100 minimum deposit every month. Member FDIC

Member FDIC

Online Savings Account - Earn 0.40% APY

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• No fees
• No minimum opening deposit
• No minimum balance required

Member FDIC

High Yield Savings

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• 0.61% APY on balance < $25,000
• 0.25% APY on balance $25K-$100K
• 0.15% APY on balance > $100K
• No minimum balance requirements
• No fees to open or maintain account
• Free ATM card upon request
• FDIC Insured

Bottom Line

A checking account is necessary for everyday use of your money. A savings account is meant to be a place for saving money toward your goals. A good financial foundation includes having both types of accounts.

Note: Interest rates, fees and minimum balances vary DRASTICALLY depending on the bank or credit union. Choosing where to save your money matters as much, if not more, than deciding the right kind of account for you.

Check out our top online checking accounts and online saving accounts.