Checking Account vs. Savings Account: How They’re Different and Why it Matters

Checking and savings accounts are the most common types of personal banking services, but what makes them different?
Last updated Jul 6, 2021 | By Matt Miczulski
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The best banks and credit unions provide a safe and convenient way to manage your money and accumulate savings. Two of the most common financial products these institutions offer to make managing your money a bit easier are checking and savings accounts.

Whether you’re thinking about opening a checking or savings account for the first time or you’re wondering how to get the most out of each type of account, it’s important to understand how they differ from each other.

Here’s what you need to know about these personal finance products.

In this article

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

When you think of personal banking, the two most common types of services that likely come to mind are checking and savings accounts. At the most basic level, these are generally the first types of accounts you might open with a bank or credit union when you want to start banking. Although they often go hand in hand, people use checking and savings accounts to accomplish different things.

How checking accounts work

A checking account is the most common type of bank account. You can use checking accounts to store and manage the money you use for everyday spending — such as gas or groceries — or to pay bills. Aside from a daily ATM withdrawal limit your bank may have, you can usually withdraw or deposit as much money as you want as often as you like.

Money held in a checking account at a bank insured by the Federal Deposit Insurance Corporation (FDIC) is covered up to at least $250,000, which makes checking accounts a safe place to keep your money. FDIC insurance protects depositors against the loss of their money if their FDIC-insured financial institution fails.

Checking accounts offer convenient ways to pay for things without using cash, such as checks and debit cards. In many cases, you can use a checking account to pay for online transactions. Most debit cards also allow you to withdraw money from your bank’s ATM, and gives you easier access to your money. Some banks, however, charge fees if you use another bank’s ATM.

In general, money held in a traditional checking account doesn’t accrue interest. If it does, the interest rate is typically very low. Online banks, however, may offer interest-bearing checking accounts. Online banks tend to have lower overhead costs, and they pass these savings to their customers through higher interest rates and fewer fees. According to the FDIC, the average national interest rate for interest-bearing checking accounts is .04% as of May 25, 2020.

Checking account pros

  • Easy access to money
  • Makes money management easier
  • Convenient products for paying for things without using cash
  • FDIC insurance of at least $250,000 per bank
  • No limit to the number of checking accounts you can open

Checking account cons

  • Many banks charge fees for withdrawing more money from the account than is in it (i.e., overdraft fees)
  • Many banks charge fees for using another bank’s ATM
  • Some banks have balance requirements and may charge account fees for not maintaining a minimum balance
  • Low interest rates or doesn’t earn interest at all

When choosing the best checking account for you, first consider whether you prefer in-person or online banking. Then, determine what’s important to you in a bank. You might look at online reviews and whether the bank offers other products and services like overdraft protection, online bill pay, or mobile banking.

How savings accounts work

Savings accounts are deposit accounts that can help you separate the money you want to save from the money you need to spend. Like checking accounts, there is no limit to the number of savings accounts you can open. For many, this makes it easier to save toward a specific goal, such as a new car, home improvements, or an emergency fund. Most banks allow account holders to transfer money easily from their checking to their savings account, and many banks allow you to set up automatic transfers for a more convenient and automated approach to reaching your savings goals.

Banks usually pay you interest for keeping your money in a savings account, though this interest rate will vary from one bank to another. In general, online banks tend to pay higher interest rates on savings accounts than their brick-and-mortar counterparts. These savings accounts are typically known as high-yield savings accounts or money market accounts. Whereas a traditional savings account earns .06% interest on average, according to the FDIC as of May 25, 2020, it’s normal to see interest rates on a high-yield savings account in excess of 1%.

When you consider the power of compound interest — the interest you earn when you deposit money into your account and the interest already earned — the difference in the amount of interest you can earn on your money between a traditional savings account and a high-yield savings account is substantial.

For example, if you put $1,000 into a savings account that earns .06% annual percentage yield (APY), you will earn 60 cents, bringing your total account balance to $1,000.60 at the end of the first year. The next time your account earns .06% interest, it will be based on $1,000.60 instead of just $1,000, which gives you a total account balance of $1,001.20 at the end of year two.

If, however, you put $1,000 into a high-yield savings account that earns 1% APY, you will earn $10, which will result in a total account balance of $1,010 after the first year. The interest compounded in the second year uses a starting balance of $1,010, which will earn you a total account balance of $1,020.10 at the end of the second year.

If you’re wondering how to choose a savings account, take the same approach as you would a checking account. After you decide whether you want to bank online or in person, start looking at different banks and what they have to offer. The best savings account for you might be a savings account that pays the most interest, though that may not be the only thing you’re looking for when considering ways to make money with your money. 

Checking account vs. savings account: A side-by-side comparison

When comparing a checking vs. savings account, it’s important to remember that they are two different types of bank accounts. Although you can have both types of accounts, they each play a different role in the overall management of your money.


Savings account Checking account
Interest-bearing Yes In some instances
Common transaction fees
  • Minimum balance fee
  • Monthly maintenance fee
  • Non-network ATM fee
  • Excessive withdrawal fee (if you exceed the monthly allowable withdrawal/transfer limit)
  • Overdraft fee
  • Non-network ATM fee
  • Minimum balance fee
  • Monthly maintenance fee
Withdrawal limits Six withdrawals per month No withdrawal limits
Best for... Saving money Everyday spending

FAQs about checking accounts vs. savings accounts

Do you need both a checking and a savings account?

There is no hard and fast rule that says you need either a checking or a savings account, let alone both. There are, however, instances in which you might need a checking or savings account. For example, you will need a bank account to set up direct deposit. Aside from instances that require a bank account, whether you need both a checking and a savings account depends on your personal financial situation.

Is money safer in a savings account?

The safety of your money depends on the bank’s specific security measures and whether the bank is insured through the Federal Deposit Insurance Corporation (FDIC). FDIC insurance covers depositors of a failed bank up to at least $250,000. These protections cover money held in both savings and checking accounts.

How much money should I keep in checking vs. savings?

The amount of money you should keep in each account depends entirely on your specific financial situation. In general, you should keep enough money in your checking account to cover your bills and regular expenses. How much money you keep in your savings account depends on your specific financial goals.

Is a savings account worth it?

It is worth having a savings account if you want a safe place to store your money for the long term as you save toward your goals. Not only does a savings account make it easier to track your progress, but you can also earn interest on your money. This allows your money to grow at an even faster rate.

Is a checking account worth it?

A checking is worth having if you want a convenient way to manage your money. Checking accounts give you alternative ways to pay for things aside from using cash, and there is no limit on the number of transactions you can make. A checking account may be required in some instances as well. For instance, you need a bank account to set up direct deposit. Given the number of banks that offer free checking accounts and no fees, a checking account is typically worth having.

Do interest rates differ between a checking and savings account?

You can likely expect a higher interest rate on a savings account than what you'd see with a checking account. The average national interest rate for interest-bearing checking accounts is .04% as of May 25, 2020. Traditional savings accounts earn .06% APY on average, but high-yield savings or money market accounts can earn well over 1% APY as of May 25, 2020.

The bottom line: checking and savings accounts both offer value

As two of the most common banking services offered by banks and credit unions, there’s no doubt checking and savings accounts provide value. These accounts are safe and practical ways to manage and save your money, and most people can benefit from having one or both these types of accounts.

  • Earn cash back rewards - up to 10% - when you spend with your debit card
  • Get $150 bonus when you spend $1000 in the first 60 days
  • Up to 1.00% APY interest (up to 25 times higher than Big Banks)
  • Unlimited fee-free withdrawals at 55,000+ ATMs
  • Deposits are FDIC insured

Author Details

Matt Miczulski Matt Miczulski is a personal finance writer specializing in financial news, budget travel, banking, and debt. His interest in personal finance took off after eliminating $30,000 in debt in just over a year, and his goal is to help others learn how to get ahead with better money management strategies. A lover of history, Matt hopes to use his passion for storytelling to shine a new light on how people think about money. His work has also been featured on MoneyDoneRight and Recruiter.com.