Checking Account vs. Savings Account
A checking account is a type of bank deposit account that is designed for everyday money transactions. The money in a savings account, however, is not intended for daily use, but is instead meant to stay in the account — be saved in the account — so that it might earn interest over time. Savings accounts have higher interest rates than checking accounts, meaning it is better to let large sums of money (e.g., an emergency fund) sit in savings instead of checking. The fees and other criteria for checking and savings accounts — such as monthly account maintenance fees, minimum account balances, and interest rates — vary slightly from one bank to another.
Comparison chart
 | Checking Account | Savings Account |
|---|---|---|
| Withdrawal Restrictions | None | Typically 3-6 withdrawals a month. Allowed to withdraw only a portion of the account balance. |
| Minimum Balance | Sometimes, varies by bank | Sometimes; varies by bank |
| Designed For | Regular use | Saving money risk-free for short- or long-term |
| Fees | Sometimes, varies by bank | Sometimes, varies by bank |
| Interest Earned | Nominal/none | Yes, but amount varies wildly by bank or credit union |
| Overview | A type of bank account that is designed for everyday money transactions. | An account that accrues more interest than a checking account does; intended for saving money. |
| Access | Any time | To use money, account holder must first transfer it to checking account (usually) |
| Other Features | Overdraft, external online transactions (money transfer, manual/automatic bill pay) | No facilities other than internal online transactions with some banks (i.e., transfer from savings to checking) |
Account Fees
Many banks require checking account holders meet some criteria; for example, to set up the direct deposit of paychecks into a checking account, the account owner must usually maintain a minimum balance or make a minimum number of transactions each month. When these criteria are not met, banks often charge users monthly maintenance fees. Banks may also impose ATM usage fees, overdraft charges, overdraft protection fees to avoid overdraft charges, and fees for online access and bill paying. These vary depending on the bank, with some banks and credit unions, like Ally, charging very few fees.
Most savings accounts are fee-free, as long as owners do not exceed their withdrawal limits. However, some banks, like Bank of America, require account owners keep a minimum daily balance or make a certain number of money transfers into the savings account every month to avoid account maintenance fees.
This short video explains the differences between savings and checking accounts:
Interest Rates
Checking accounts typically earn little to no interest, depending on the bank. Savings accounts always accrue interest. The interest rate depends on the bank, the type of savings account (e.g., see Money Market vs Savings Account), and the amount deposited, but is always higher than the interest rate on checking accounts.
As of May 2016, the highest interest rate on savings accounts (in the United States) is about 1%. [1] Online banks, like Ally and EverBank — those without traditional brick and mortar businesses — often offer higher-yielding accounts than can traditional banks, but some credit unions can be equally good, if not better.
Bill Pay
Several other online transactions are possible with a checking account. For instance, with online banking, an account owner can set up automatic bill pay for recurring payments like rent, water/electric bills, etc., and even make one-time payments.
Such transactions are usually impossible with a savings account, although one can transfer money from his or her savings account to a checking account.
Debit Cards
Checking accounts often come with debit cards that allow withdrawals from an ATM and pay for items in stores. Debit cards only allow users to spend money that is available in the account.
Savings accounts typically do not come with debit cards, so withdrawals must either be transferred to a connected checking account online, requested over the phone, or done in person at the bank.
Restrictions
There are no limits on the number of transactions (withdrawals and deposits) that can be made to or from a checking account.
Savings accounts are designed for occasional use, so they usually have restrictions on how often money can be withdrawn. The limit is typically three to six withdrawals a month, including electronic transfers and automatic payments. There is no limit to the number of deposits one can make into a savings account.
Usage
A checking account is typically used for regular spending and purchases, like paying bills, shopping for groceries, etc. While it is possible to withdraw money from a savings account at an ATM, by default ATMs withdraw cash from a checking account.
A savings account, as the name suggests, is used to save money for a longer period of time. The idea is to let that money accrue and not use it unless there is an emergency or until it is time to pay for college tuition or purchase a significant item, like a house or car.
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Checking vs. Savings Accounts
Checking and savings accounts can serve different financial purposes
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Marguerita is a Certified Financial Planner (CFP®), Chartered Retirement Planning Counselor (CRPC®), Retirement Income Certified Professional (RICP®), and a Chartered Socially Responsible Investing Counselor (CSRIC). She has been working in the financial planning industry for over 20 years and spends her days helping her clients gain clarity, confidence, and control over their financial lives.
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Marcus Reeves is a writer, publisher, and journalist whose business and pop culture writings have appeared in several prominent publications, including The New York Times, The Washington Post, Rolling Stone, and the San Francisco Chronicle. He is an adjunct instructor of writing at New York University.
When it comes to managing money, you may be wondering whether a checking account or a savings account is better equipped to meet your needs. Surprisingly, 25% of American households are either underbanked or unbanked, meaning they have a bank account but still rely on nontraditional financial services or have no bank account at all. Both types of bank accounts can help meet different needs for staying on top of your finances, though they don’t function in the same way.
Key Takeaways
What Is a Checking Account?
A checking account is an account held at a financial institution that allows you to make deposits and withdrawals. These accounts can offer both a debit card and check-writing capabilities. Withdrawals can take the form of cash withdrawals made at a branch or an ATM, as well as debit card purchases, checks, money orders, ACH transfers, and wire transfers. Similarly, deposits can be made by depositing cash, checks, or money orders at a branch or an ATM, as well as via mobile check deposit, automated clearing house (ACH) transfer, or wire transfer.
“If you need to use funds for daily transactions, a checking account is the best way to do that,” says John Bergquist, senior founding partner at Common Sense Financial in South Jordan, Utah.
A checking account is useful if you need to:
Checking accounts may or may not be interest-bearing, meaning that the money you deposit earns interest as long as it stays in your account. These accounts can be offered by brick-and-mortar banks, online banks, and credit unions.
What Is a Savings Account?
A savings account is a deposit account that’s designed for holding funds that aren’t earmarked for paying bills or covering spending. For example, you might open a savings account to grow your emergency fund, set aside money for a vacation, build your down payment fund if you’re planning to buy a home, or save money for home improvements. Like checking accounts, you can find savings accounts offered at traditional banks, online banks, and credit unions.
Between savings and checking accounts, you’re less likely to earn interest with the latter. Banks pay savers an annual percentage yield (APY) as an incentive for keeping their money in their savings accounts. The APY savers can earn isn’t uniform, however. It can vary from bank to bank. On average the national savings rate was 0.05% as of January 2021.
“An online savings account is a much better option at almost 20 times higher a rate than the traditional checking account,” Bergquist says. “In fact, it’s even very similar to what you would earn when purchasing a 10-year Treasury bond.”
Online banks often have the capability to pass on higher interest rates to savers, owing to their lower overhead and operating costs. The rates can vary widely, but it’s not unthinkable to find high-yield online savings accounts from banks and credit unions earning an APY in the range of 1.90% to 2.25%. There is, however, a catch associated with savings accounts.
In addition to higher interest rates on savings, online banks may charge fewer fees. For example, a traditional bank may charge a monthly maintenance or minimum balance fee for a savings account, while an online bank may not charge either of these fees.
Regulation D and Savings Accounts
A key mark in favor of checking accounts is the fact that withdrawals are virtually unlimited. You could use your card 10 times a day to shop or make daily cash withdrawals without being penalized by the bank. Savings accounts, on the other hand, offer access to your money on a more restricted basis.
“A new customer has to understand the limits of withdrawals from a savings account under Regulation D,” says Christine O’Donnell, president of CR O’Donnell & Associates in Castle Pines, Colo. “It is usually no more than six withdrawals a month, and if this is violated, you could be faced with excessive fees or even lose your interest rate offer.”
If you exceed the six allowed withdrawals per month, your bank can charge you an excess withdrawal fee. Some banks can charge multiple fees, meaning you’re penalized for every withdrawal beyond six. The more fees you pay, the less of your interest earnings and original deposits you get to keep.
Warning
If you exceed the six withdrawal limit regularly, the bank may reserve the right to convert your savings account to a checking account or close it altogether.
Checking vs. Savings Accounts: Which Is Better?
When comparing checking and savings accounts, you may find that one is better suited than another to your needs, and in some cases you may benefit most from using both. Here are some questions to consider when shopping around for a checking or savings account.
You should also check to see whether the bank offers any special perks for opening an account. “Banks are highly competitive in a ridiculously low-interest-rate environment, and there are occasional incentives that could make a checking or savings account more attractive,” O’Donnell says. For example, you may be able to join a debit card rewards or discount program that could save you money, or you could take advantage of promotional deals for opening other accounts, such as a money market or certificate of deposit account.
Lastly, keep in mind the kind of access you need when it comes to banking. Whether you choose a checking or savings account, consider whether the bank offers the online and mobile banking tools you need to manage your money digitally, the number of ATM locations, and whether branch banking is available, if that’s something you occasionally use.
Difference Between Savings and Checking Account
April 25, 2013 Posted by Admin
Savings vs Checking Account
Savings accounts and checking accounts are the two most common types of accounts that are maintained by businesses and individuals. While both savings accounts and checking accounts help the individual or business to manage their funds in some way, they are quite different to one another in terms of the purposes for which they are used, their features, fees charged, interest earned, etc. Understanding the difference between savings and checking account is essential, as this will help anyone who is interested in maintaining their funds in a bank account. The article offers a clear overview of savings and checking Account and explains how they are similar and different to one another.
Savings Account
Savings accounts as the name suggests are mainly opened for the purpose of saving funds. Savings accounts usually offer the account holder a larger percentage of interest on the funds held. The percentage of interest can depend on the bank, amount that is maintained in the account, and the type of account. Savings accounts have a limit on the number of withdrawals that can be made within a month, and a small charge will be made for any funds that are withdrawn from thereon. There are, however, no limits on the number of deposits that can be made. Savings accounts only allow the account holder to withdraw funds up to the amount that exists in the account, and no overdraft facilities are available for savings accounts. Savings accounts may have a minimum balance requirement, depending on the bank, amount of interest paid, and type of account.
Checking Account
Checking accounts are used as a means to deposit checks and for bill payment purposes. Checking accounts generally do not offer the account holder interest on the funds held, however, depending on the bank or type of account there may be some exceptions. Checking accounts usually do not have limits on the number of withdrawals that can be made; which means that account holders will not be charged an extra fee if excess withdrawals are made. It is easier to access funds with a checking account, and an account holder can access more funding (than the amount of money in their account) as long as they have arranged an overdraft facility with the bank. Checking accounts usually have a number of fees that need to be paid including fees for ATM, overdraft facilities, online bill payment facilities, etc. Most checking accounts also require a minimum balance to be maintained in order that the account will have sufficient funds to meet the bill payments that have been scheduled.
What is the difference between Savings and Checking Account?
Checking accounts and savings accounts are quite distinct from each other due to their various features and the purposes for which they are used. However, it must be kept in mind that banks have modified their various types of savings and checking accounts and the line between the two are starting to blur. There are, however, a number of differences that stand out. The main purpose of a savings account is to save funds for the future. The purpose of opening a checking account is to deposit check and manage payments. Savings accounts pay a higher rate of interest while checking accounts usually do not pay interest. Checking accounts also offer overdraft facilities, online payment facilities, and automatic bill payment facilities that are usually not provided to savings account holders.
Summary:
Savings Account vs Checking Account
• Savings accounts and checking accounts are the two most common types of accounts that are maintained by businesses and individuals.
• Savings accounts as the name suggests are mainly opened for the purpose of savings funds.
• Checking accounts are used as a means to deposit checks and for bill payment purposes.
• Savings accounts pay a higher rate of interest while checking accounts usually do not pay interest.
• Checking accounts offer overdraft facilities, online payment facilities, and automatic bill payment facilities that are usually not provided to savings account holders.
What is the difference between checking and savings accounts?
A checking account is a bank account you can write checks from, or access several other ways, which tends to make it your go-to, daily transaction bank account. A savings account is where you stash funds that you aren’t ready to use yet, often with the goal of accumulating more. The differences between them affect how you can use each to manage your financial life—and you’re likely to find both handy.
| Checking vs. | Savings |
| Offers easy access to your funds: | Designed to save for long-term goals: |
| ATM withdrawals (may be capped at a certain amount daily) | Typically offers higher interest rates |
| Debit card takes funds directly from your account | Limited access so you won’t be tempted to use for impulse buys |
| May provide an option to order checks | You may need to move money into checking to make frequent withdrawals |
| Easy transfers to pay bills online | Can be linked to checking so you can transfer funds between accounts |
You might use it for …
You might pay fees for …
Now that you know the difference between checking and savings accounts and how each can help you, you’re ready to get the most out of each and use them to work toward your goals.
Learn more about your checking and savings options from Bank of America.
The material provided on this website is for informational use only and is not intended for financial, tax or investment advice. Bank of America and/or its affiliates, and Khan Academy, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional and tax advisor when making decisions regarding your financial situation.
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Checking vs. savings account: What’s the difference?
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In addition to having a checking account, you will also want to have a savings account. Each serves a different purpose, but they both help you manage your money.
Checking vs. savings accounts
Here are the main differences between the two and why you should have both.
| Checking account | Savings account | |
|---|---|---|
| Primary use | Spending | Saving |
| Interest | Sometimes, but usually minimal | Yes, interest rates vary by bank |
| Common fees | Monthly maintenance fee, overdraft fee, out-of-network ATM fee | Monthly maintenance fee, minimum balance charge, savings withdrawal limit fee |
| Minimum balance | Varies by bank | Varies by bank |
| Common fees | None | Six per month in most cases |
Checking accounts
Checking accounts are mostly used to make everyday transactions and are used frequently. To make transactions convenient, checking accounts usually come with a debit card, a checkbook and a mobile app with payment features that allow you to send money to yourself or to other people, even if they bank elsewhere.
The downside, however, is that banks typically don’t pay interest on money in checking accounts. So there’s not a lot of opportunity to grow your money.
When shopping around for a checking account, there are two key features to look for:
Savings accounts
Savings accounts — especially high-yield savings accounts — typically offer higher interest rates than checking accounts allowing you to grow your money faster.
However, with savings accounts, your funds are not as easily accessible as they would be in a checking account. You are generally limited to just six withdrawals or transfers per month from a savings account. If you transact more than that amount, you will likely pay a fee.
Savings accounts are not meant to be used for everyday transactions. Instead, they should be viewed as an account to store your money for a specific goal. With that in mind, banks place more restrictions on savings accounts and the money is not as easily accessible as a checking account.
When looking for a savings account, consider these key factors:
Similar to checking accounts, you may also earn a bonus for simply opening a new savings account.
Why you need both types of accounts
Checking and savings accounts serve a very different purpose, but both accounts are important to have.
A checking account should be thought of as a transaction account — the place where your monthly bills will be paid from, where you’ll write checks or have money electronically drawn from to pay bills. You should maintain a cushion of funds in a checking account. But after keeping the essential amount needed to pay bills (and to make other transactions) in your checking account, the rest of your money should be put in a savings account, brokerage account or invested in a retirement fund.
A savings account can help you save for a specific purpose and earn some interest in the process. It’s a great place to keep your emergency fund or money for a short-term or medium-term goal such as a down payment on a home or car.
How to choose the best checking and savings accounts
When deciding what the best checking and savings account is for you, it’s important that you know what your finances look like, what benefits you’re seeking and what your goals are.
Here are a few questions you may want to answered when looking for a new checking account:
You will want to ask similar questions when looking for a new savings account:
Everyone’s list may look a little different, but these are some of the common questions you should ask when deciding.
Compare checking accounts and savings accounts on Bankrate to find the right account for you. You can also use Bankrate’s bank reviews to compare banks.
