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

Savings and checking accounts both help you manage money, but they differ in what they’re used for. In addition to having both accounts, it is important to understand the different purposes they serve.

Checking vs. savings accounts

A checking account helps you manage your day-to-day finances, like paying your bills, buying groceries and gas and withdrawing cash from an ATM.

A savings account is a longer-term account for emergency savings or saving towards a specific goal, such as an upcoming vacation.

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
Limits on transfers None Six each statement cycle, in most cases

What is a checking account?

Checking accounts are easily accessible and are used frequently for everyday transactions, such as transferring money or writing checks. To make transactions convenient, checking accounts usually come with a debit card, checkbook and mobile app with payment features, such as Zelle, for sending money to other people, even if they bank elsewhere.

The downside, however, is that banks typically don’t pay interest on money in checking accounts. As a result, money in checking accounts doesn’t grow.

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

  • No monthly maintenance fees (or easy ways to waive them).
  • Free access to a large ATM network.
  • No or low overdraft fees.

It’s also worth finding out if a new account sign-up bonus is available. You may be able to earn $100 to $500 — or more, when you open a checking account and set up direct deposit.

What is a savings account?

With savings accounts, funds are less accessible, since they are made to store money for financial goals. Checks can’t be written against them, and you’re generally limited to six free withdrawals or transfers a month from the account.

Because savings accounts are not made for everyday transactions, you can store money in the account for longer to collect interest. Savings accounts — especially high-yield savings accounts — typically offer higher interest rates than checking accounts, allowing you to grow your money faster.

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. Choose an account with a minimum-balance requirement that matches your financial situation.
  • Fees. Look for accounts that have no monthly maintenance fees or easy ways to waive them.

Similar to checking accounts, you may also earn a bonus for simply opening a savings account.

Do checking and savings accounts pay interest?

Interest helps you grow your balance and meet savings goals more quickly. Most checking accounts do not generate interest, while savings accounts do.

A checking account should be thought of as a transaction account. Checking accounts are not meant for building savings and, as such, do not provide supplements to saving like interest, though you may be able to find a checking account that pays interest.

Savings accounts will almost always pay you interest. The effective yearly rate on an account is called the annual percentage yield (APY). When exploring different savings account options, it’s important to look out for which accounts have the highest APY. Finding an account with a high APY will provide the most growth for your savings.

Keep in mind that rates on savings and checking accounts are variable, so the bank may change the rate amount depending on market conditions.

How does Regulation D affect savings accounts?

Consumers are typically limited to six withdrawals or transfers a month from savings accounts due to Regulation D, a Federal Reserve requirement that distinguishes between transaction and nontransaction accounts. A savings account is considered a nontransaction account, and, therefore, the number of transactions is capped and any above the limit are subject to a fee.

In April 2020, however, the Federal Reserve relaxed the rule in response to the coronavirus pandemic. Banks now are able to suspend the regulation, allowing consumers to make more than six withdrawals or transfer from a savings account each month. Banks are not required to suspend the regulation, though, and many still adhere to the limit.

Whether the regulation is suspended or not at your bank, be aware of how many withdrawals or transfers you are allowed to make from your savings account. If the bank imposes a limit and you exceed the limit, you will be charged a fee, one that is easily avoidable if you’re familiar with your bank’s terms and disclosure documents.

Is money in checking and savings accounts safe?

The vast majority of deposits accounts are insured by either the Federal Deposit Insurance Corp. (for banks) or National Credit Union Administration (for credit unions).

The FDIC ensures that when a bank fails, depositors’ funds will not be lost. The insurance covers up to $250,000 per depositor, so for a jointly owned checking or savings account up to $500,000 would be insured. FDIC coverage is backed by the U.S. government, so if you open an account at an FDIC-insured bank, you can be assured that up to $250,000 of your money is safe.

Similarly, the NCUA backs balances in checking and savings accounts but for credit unions. Like FDIC insurance, NCUA insurance covers up to $250,000 per person, per account type.

To guarantee that your money is protected by the federal government, check to see whether your financial institution is insured by the FDIC or NCUA. You can confirm whether a bank is FDIC insured using the BankFind Suite. For credit unions, check the NCUA’s searchable database of insured credit unions. Some banks may be insured by the state rather than the federal government.

Should I have both accounts at the same bank?

Keeping your checking and savings accounts at the same bank may be most convenient, but it can also have some limitations.

Benefits of having both accounts at the same bank include:

  • All account information is easily viewed in one statement, web page or app.
  • You may be able to link a savings account to your checking account as overdraft protection to cover a check or debt transactions that exceeds your checking balance.
  • In some cases, you can earn special relationship benefits, such as a higher rate or waived fees, by linking checking and savings accounts.

If you choose to open both accounts with the same bank, however, you may miss out on better deals offered by other banks. For example, one bank might feature a large network of ATMs where you can withdraw money from your checking account with no fee, but its savings accounts have very low APYs. Meanwhile, an online bank might offer great rates on its savings accounts but doesn’t have any branch accessibility. In these cases, the reward of having the accounts in separate banks may outweigh the benefits of having both in the same bank.

Bottom line

Checking and savings accounts serve distinct purposes, and both are important for performing everyday transactions and building savings.

When exploring savings and checking account options, consider what benefits you prioritize and what your savings goals are. Your choices will vary depending on these factors. If your focus is building savings as much as possible, then a high-yield online bank account might be the best fit. If you value bank loyalty, then having both accounts at the same bank may offer some benefits.

Use the search tools available to see if your bank is insured, so you won’t risk losing money. Make sure to look out for fees and minimums that are avoidable, and compare rates offered by different institutions. A higher rate on your savings means a better payout over time.

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