Checking vs. Savings Accounts: Which Is Better for What and Why?

A guide to the benefits and drawbacks to checking and savings accounts, as well as the differences between them.
8 minute read | 6/26/19June 26, 2019
Writing out a check with a pen

Trusting a bank with your money is something nearly everyone can benefit from, but sometimes it’s tough to understand what type of accounts are better for what purpose. To help you make the best decisions with your money, this guide will educate you on the similarities and differences of checking vs. savings accounts.

By the time you finish reading, you’ll better understand where your money will work best for you, why making the right decision will help you meet your financial goals, and how to take advantage of each account type so your money stays protected.

Checking vs Savings Account

Checking Savings
Intended Purpose To have convenient, frequent, and secure access to your money for purchases and other transactions To keep money separate and earn interest to encourage more saving
Interest Little to none Typically higher than a checking account
Fees Service/maintenance fees, ATM fees, minimum balance fees, overdraft fees, and more Excess transaction fees, service/maintenance fees, minimum balance fees, and more
Mobile/Online Management Yes, most banks allow you to manage your checking account from a mobile app or online Yes, most banks allow you to manage your savings account from a mobile app or online
Minimum Balance Varies by institution Varies by institution
Withdrawal Limits Varies by institution but typically allows unlimited withdrawals Six withdrawals per month by federal mandate
ATM Access Yes, but you may incur fees for using an ATM out of your institution’s network Yes, but you may incur fees for using an ATM out of your institution’s network
Debit Card Available Most accounts issue a debit card Possible to request one, but not normally issued
Insured Your account will most likely be insured for up to $250,000 by the FDIC or NCUA Your account will most likely be insured for up to $250,000 by the FDIC or NCUA
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Similarities between checking and savings accounts

For the most part, checking and savings accounts are very similar. The basic function of these accounts is the same. You can freely deposit as much money as you’d like into both types of accounts, including via direct deposit, and withdraw money when you need it. It’s possible to get checks and a debit card issued for either account type, and most banks allow you to manage your accounts online.

Note: Even though withdrawing money is a function these accounts share, you’ll read later in this guide about how the specifics of withdrawing money from a checking vs. savings account differ.

Also, you’ve probably seen a bank with a plaque somewhere that reads “FDIC” or “NCUA” — but what does that mean? The Federal Deposit Insurance Corporation, or the FDIC, and the National Credit Union Administration, or the NCUA, are both insurance providers that protect your money when it’s deposited at a bank in either a checking or savings account. No matter where you decide to put your money, you can rest assured it’s guarded at these institutions.

Benefits of checking accounts

Checking accounts are designed to have money flowing in and out of them. The best checking accounts allow for unlimited deposits, withdrawals, and transfers. Some institutions may have a limit on the number of transactions per type, so ask about the institution’s policy when determining where you’ll open a checking account.

Typically, deposits and withdrawals can be made through various methods, in person and electronically. Additionally, many checking accounts issue a debit card to the account owner, which allows them to withdraw money via purchases in the store and from an ATM.

Checking accounts can also be used to set up autopay for some bills. A debit card isn’t always required to set up autopay, since you can often use the account number and routing number instead. This is great for making bill management easy each month and lowers your risk of making a late payment or missing a payment.

Where checking accounts fall short

Some checking accounts have fees that are automatically charged for the management of the account or when you don’t meet a minimum balance. This means you’re paying to have access to your money each month. Additionally, you’ll likely pay an ATM fee when you use one outside your institution's ATM network. Always ask about any fees you could incur while you have a checking account open. This will help you understand the best way to manage your money to your benefit.

Generating interest on your bank account is great because your money is working for you, but there’s a slimmer chance you’ll find a checking account with a decent interest rate. An interest-bearing checking account will offer only around 0.01% APY (annual percentage yield), on average. Many checking accounts don’t generate any interest at all, and if they do, you’ll likely pay that interest back in any fees you incur. Therefore, they are not an ideal account for storing large sums of money.

While financial institutions typically have systems in place to prevent fraud, there is always the risk it could happen. If you keep a sizable amount of money in your checking account, be extra careful with your information and debit card usage to decrease the chances of becoming a victim of fraud and having your money stolen. If fraud does happen, keep in mind that it could take a while for your bank to investigate and for your money to be credited back to you. This makes checking accounts a less ideal place to park large sums of money.

Benefits of a savings account

Savings accounts typically have fewer fees and better interest rates than checking accounts. This means you’ll pay less and generate more interest, therefore growing your money even when you don’t make additional deposits. The national average interest rate for savings accounts is 0.10% APY, but you can find rates upward of 2% if you qualify for a high-yield savings account, which you’ll read more about below. You can even set up a direct deposit from your paycheck or as a transfer from your checking account to your savings to build it up without having to remember to deposit money each month.

Additionally, it’s important to note that the money in both your savings and checking accounts is insured separately but for the same amount, so you’ll be covered for up to another $250,000 by opening a savings account. In fact, it’s best to have multiple savings accounts to better protect your money if you have a lot of it.

Where savings accounts fall short

Remember that a savings account is intended to contain money that stays put with few exceptions. Because of this purpose, there are federal mandates regarding your ability to move money from your savings account.

The Federal Reserve states that for an account to be considered a savings account, there cannot be more than six transfers or withdrawals per month. This means that while you’re allowed to make unlimited deposits each month, you’re limited to six instances of taking money out of the account before you’ll be issued a fee.

Transactions made online or set up to run automatically will count toward that limit. For example, if you have your savings and checking accounts linked for overdraft protection or autopay set up for multiple bills, each of those transactions will count against your monthly limit.

Certain types of transfers and withdrawals don’t count toward this limit, but they are less convenient. In short, if you visit the bank in person, go to an ATM, or wait for a check in the mail that’s issued from your savings account, it won’t count against your transaction limit.

High-yield savings accounts

If you’re thinking you’d like to open a savings account, consider opening a high-yield savings account. This type of account comes with a higher interest rate than traditional savings accounts, which means your money could grow even faster. Keep in mind that high-yield savings accounts still have the same transaction limits as traditional savings accounts.

In some, but not all, cases, high-yield savings accounts may require a higher minimum than other savings accounts, but this condition could be worth it if your money is multiplying at a quicker rate. With online banks, you can even find high-yield savings accounts that have no maintenance fees and no minimum deposits. Do some additional research to find the best high-yield savings account for you before making a final decision.

Should you open a checking or a savings account?

Good news: you can have both!

That said, the answer to this question depends on your money habits and financial goals. It’s also possible to have one without the other. For example, if you foresee making numerous withdrawals from a savings account, it may be best to only open a checking account. If you prefer to carry cash and can limit your number of withdrawals, you might opt to open only a savings account.

Also, if you have a large amount of money already saved, you may consider opening several savings accounts to better protect your money or opening a high-yield savings account to earn more interest — or a combination of both. The high-yield savings account is great if you’re saving up for a large purchase, like a car or house, while the traditional savings account may serve better as a short-term emergency fund.

Do I need to have my accounts at the same institution?

This is entirely up to you. It is not required that you have a checking account and savings account at the same institution. Choosing the same institution may come with some perks, like waived maintenance fees. Transferring money between accounts can also be much easier, but that ease can also lead to temptation to take money from your savings more often.

You may instead choose separate institutions to capitalize on the benefits offered by both. For example, one institution may offer a higher interest rate with your checking account but maybe doesn’t offer a high-yield savings account as well. Also, having your accounts at separate institutions might make it easier for you to focus on smarter financial decisions that will benefit you.

Quick summary

All in all, here’s what you really need to know to decide if you should open a checking or savings account:

  • Open a checking account if you want convenient access to your money, like setting up autopay for your bills, and need to be able to move your money between accounts without limits.
  • Open a savings account for capitalizing on interest, saving for big purchases, and making investments — if you can manage your finances with limited withdrawals.
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