Checking vs. savings account: What’s the difference?

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If you have 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

A checking account helps you in everyday moments, like paying your bills, buying groceries and gas and taking money out of an ATM.

A savings account is a longer-term investment that comes in handy in case of an emergency or to help you reach one of your future goals. It’s where you should store money to earn interest, so that it can grow over time.

Here are the main differences between the two and why you should have both.

Traditionally, checking accounts are mostly used to make everyday transactions and are used quite 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.

Savings accounts, however, are not meant to be used for everyday transactions. Instead, they should be viewed as a longer-term investment as they are meant to store and build your money. With that in mind, banks place more restrictions on savings accounts and the money is not as easily accessible as a checking account.

Here are the key differences between checking and savings accounts:

Checking

Savings

Primary use Spending Saving
Interest Sometimes, but it’s 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
Withdrawal limits None Six per month (usually)

Checking accounts

Checking accounts are primarily used for spending. The main benefit of having one is easy access to your money through various mediums (think: debit card, mobile banking app and checks).

The downside, however, is that banks typically don’t pay interest on money stored in checking accounts. So there’s not a lot of opportunity to grow your money.

When shopping around for a new checking account, there are two key features to look for:

  • No monthly maintenance fee (or easy ways to waive them)
  • Access to nationwide ATMs for free

It’s also worth checking to see if there’s a sign-up bonus available. Typically, you can earn anywhere from $100 to $500 by simply opening a new checking account and setting up direct deposits.

Savings accounts

Savings accounts should be used to build and store your money. These accounts typically come with higher interest rates than checking accounts, allowing you to grow your money faster.

The drawback of that perk is that your funds are not as easily accessible. 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 have to pay a fee.

When looking for a savings account, consider these key factors:

  • A high APY (the higher the APY, the more money you will earn)
  • The minimum balance (Some savings accounts require a high balance in order to earn the APY. Double check that you can meet the minimum amount required.)
  • Monthly maintenance fees (or easy ways to waive them)

Similar to checking accounts, you can also earn a bonus for simply opening up a new savings account. Currently, there are offers available ranging from $100 to $700. This is an easy way to get a head start on your savings.

Why you need both

Checking and savings accounts each serve a very different purpose, both of which are important for your long-term financial health.

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. A checking account should have a cushion. But after keeping the essential amount needed to pay bills (and to make other transactions) in your checking account, put the rest of your money in a savings account.

A savings account is important to have as it allows you to effortlessly grow your money: By simply storing money, you earn interest. It’s where you should deposit money that you’re not planning to use but would need for unexpected expenses. Savings accounts are also an appropriate place for other funds that you’re accumulating, such as money to save for a down payment on a home or any future goal.

If you’re worried about the hassle of managing multiple accounts, know that it’s easier than ever with the ability to bank online and via mobile apps. Having two accounts can even allow you to dodge checking fees in some cases.

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 things you may want to consider when looking for a new checking account:

  • Is there a branch nearby?
  • Are there online services offered?
  • Is there a monthly maintenance fee? (Or an easy way to avoid it?)
  • Are there out-of-network ATM fees?
  • What other services does the bank or credit union offer?

You will want to ask yourself similar questions when looking for a new savings account:

  • Does it make sense to open a savings account at the same bank as my checking?
  • What’s the APY?
  • Is there a monthly maintenance fee? (or an easy way to avoid it)
  • Are there online services offered?

Everyone’s list may look a little different, but these are some of the common questions you should ask yourself 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.

Featured image by Hiya Images/Corbis of Getty Images.

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