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

5 min read

When it comes to checking accounts, you will likely use one in your everyday life. You can usually make as many transactions as you want from the account, but generally won’t get a high annual percentage yield (APY). High-yield savings accounts usually offer a much higher APY than traditional checking accounts; however, you’re limited to six convenient transactions or withdrawals in a month — they’re better suited for your emergency fund or saving goal(s).

There are some exceptions. For example, some checking accounts may offer higher APYs than high-yield savings accounts. But these APYs are usually capped after you exceed a certain balance. For another, savings accounts offer some unlimited withdrawal types, such as for ATM or teller withdrawals. But you are limited to how many online transfers you can make.

You should have both checking and savings accounts because they serve different purposes. Use your checking account to pay your bills and your savings account to grow your longer-term money.

When choosing a checking or savings account, make sure your money is within insurance guidelines so that it’s protected.

Confirm that the bank is either a Federal Deposit Insurance Corp. (FDIC) bank or a National Credit Union Administration (NCUA) credit union. Also make sure your account is within insurance guidelines. Each depositor at an FDIC-insured bank is insured to at least $250,000 per insured bank, for each account ownership category. At an NCUA institution, the standard share insurance amount is $250,000 per share owner, per insured credit union, for each ownership category.

Checking accounts

Transactional: Traditional checking accounts are transactional accounts. Banks expect account holders to frequently take out money from these accounts and they put few restrictions on the timing or amount of those transactions.

To help make those transactions as convenient as possible, checking accounts typically come with the ability to make payments with a checkbook, debit card, mobile apps and payment services such as Zelle that allow you to send money to yourself or to other people, even if they bank elsewhere.

Typically paid for by fees: Checking accounts usually carry fees for a long list of services or account holder missteps, such as not carrying a high enough balance, using another bank’s ATM or for covering an overdraft. But there are usually ways to avoid these fees. For instance, a bank may have an account that reimburses foreign ATM fees — at ATMs out of its network — or you may be able to waive the monthly maintenance fee if you have a qualifying direct deposit.

Banks attach many fees for two reasons:

  • Banks can’t count on your money staying in checking accounts for very long, so they must hold a greater amount of your money in reserve than they would for a savings account, and they can’t lend it out. Instead, they make money on checking accounts through fees, including earning money when you use your debit card for a purchase.
  • Keeping a close eye on a lot of transactions incurs administrative costs for the banks.

No interest payments: Most traditional checking accounts don’t pay any interest to account holders, no matter how much is in the account. But you can find checking accounts that pay interest if you shop around. Though, generally, they won’t pay more interest than savings account and money market accounts.

Savings accounts

Longer-term investment: Savings accounts are closer to a form of investment than a transactional account. You’re giving a bank access to your cash, typically for longer periods than with checking, so they can loan out almost all of it to earn a return. You’re limited to six convenient transfers or withdrawals per month from a savings account. Generally, checking accounts don’t have restrictions on withdrawals or transfers.

Harder to spend: By design, money contained in savings accounts is hard to spend directly. Savings accounts typically don’t have check-writing privileges or debit cards attached to them, so in many cases, you’ll need to withdraw or transfer money before you spend it. You may be able to initiate a wire transfer from a savings account, but generally this will fall under your limit of six transactions per statement cycle.

Few fees: With savings accounts, banks make money off the “spread” — the difference between the interest rate they pay you and the interest rate on the loans they fund with your money. Because of that, and the fact that they don’t cost as much as checking accounts to administer, banks typically charge little, if any, fees on savings accounts.

Pays interest: Current yields on savings accounts may not be great, but they may be able to help you accumulate a little more cash over time. Shop around to make sure you get the best rate on a savings account. You can compare rates on savings accounts on Bankrate to find the right account for you.

Why you need both

It’s very likely you have a checking account.

While they’re a convenient way to pay for things, most checking accounts are terrible places to save money. Not only can savers quickly take money out of their checking accounts in moments of weakness, but checking deposits make a ripe target for thieves.

Because of consumer protection laws regarding fraud, the bank will likely end up making you whole again, but that takes time. Meanwhile, you’re stuck.

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

Just make sure you comply with Regulation D limits, which restrict you to six convenient transfers and withdrawals from your savings account per statement cycle. These limited convenient transfers from a savings account include preauthorized, automatic transfers; transfers and withdrawals made by telephone, fax or computer; and transfers made by check, debit card or other similar methods that are payable to third parties, according to the Federal Reserve. A checking account generally doesn’t have limitations on the number of transfers or withdrawals out of it, according to Regulation D.

Generally, checking accounts and savings accounts allow an unlimited number of ATM withdrawals — assuming the savings account has ATM access.

There aren’t usually different limits on the amount you can withdraw from a checking or savings account. But it’s possible that your bank could require seven days’ notice for a savings withdrawal — though this right is rarely exercised, according to the Federal Reserve. A checking account is also known as a demand deposit account (DDA). A DDA doesn’t reserve the right to require at least seven days’ written notice for a withdrawal, according to the Federal Reserve.

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.

Advantages of keeping your money in a savings account vs. a checking account

The top reason to keep your money in a savings account is to earn more interest. Generally, savings accounts earn much more interest than checking accounts. A savings account is 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.

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 the bulk of your money after the essential amount to pay bills should be in a savings account so that it can accumulate the maximum amount of interest with a high APY.

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