What's the Difference Between Checking and Savings Accounts?

First Republic Bank
October 29, 2021

Two types of accounts are at the foundation of good financial health: checking and savings accounts. Your checking account lets you pay your bills and gives you quick access to cash, while your savings account helps you set aside your money for your emergency fund.  

However, both checking and savings accounts can do so much more for your personal banking needs. Here’s how to get the most out of your checking and savings accounts — and find new ways to maximize your time and money.

The main differences between checking and savings accounts

Checking and savings accounts vary based on how they’re used, as well as the features they include. There are high-level differences that can help you decide between a checking vs. savings account:

Checking Accounts

Savings Accounts

  • Designed for everyday banking

  • Allows both debit card and checks

  • Offers ATM withdrawals in addition to deposits at ATMs that your bank owns

  • Usually little to zero interest is earned on funds

  • Helps to grow your savings by setting funds aside to earn interest and reach financial goals

  • Offers account access through bank-owned ATMs

  • Typically offers higher interest rates on your balance compared to checking accounts

  • Transaction number may be limited, depending on the banking institution

Both types of accounts share some similarities. One thing that these have in common is they carry standard insurance of up to $250,000 per depositor, per account from the Federal Deposit Insurance Corporation (FDIC). These each also come with their own unique fees, including maintenance or ATM fees. These charges may vary and come with different requirements to avoid them.

What’s a checking account?

Checking accounts provide you with a place to manage your expenses and income. They’re designed for everyday use, allowing you to make withdrawals, manage spending and receive money. Personal checking accounts are designed to be transactional, rather than a place to earn interest on your balance.

Benefits of a checking account

Having a checking account provides you with a ton of benefits. These include easy access to a local bank branch or ATM, everyday access to the cash in your bank account and easy withdrawals and deposits. Many checking accounts come with convenient features, such as mobile banking and online banking, direct deposit or automatic bill payment.

There are different types of checking accounts, as well. You can opt for a checking account that offers interest on your balance or a joint checking account if you plan to share an account with another person. There may also be different kinds of accounts for senior citizens, minors or college students that come with their own benefits and terms.

Potential drawbacks of a checking account

There may be downsides to opening a checking account depending on your financial situation. These may include (but are not limited to):

  • Account fees (e.g. monthly maintenance fees, overdraft fees and bounced checks)
  • Many checking accounts don’t earn interest (except high-yield checking accounts)
  • High-yield checking accounts have higher minimum balance requirements
  • Depending on your bank, you may have to meet certain requirements to waive fees (e.g. maintaining one direct deposit or a certain average balance each month)

Having a checking account is important to managing household expenses and transactions. However, you should always consider the benefits and drawbacks of your checking account as it relates to your needs. If you’re looking to optimize your savings you might want to consider a savings account instead.

What’s a savings account?

With a savings account, you can focus on growing your wealth with money you can afford to set aside. These deposit accounts help save money, which eventually earns long-term interest without locking it away in a timed deposit account like a certificate of deposit (CD). 

Benefits of a savings account 

There are several benefits to opening a savings account, which gives you the ability to:

  • Compartmentalize your saving from your spending, which helps you stay on top of your finances
  • Keeps your funds liquid while still rewarding you with interest payments based on the account’s annual percentage yield (APY)
  • Offers easy money transfers by connecting directly to your checking account (if they’re at the same bank or credit union)

Potential drawbacks of a savings account

There are some drawbacks to consider as far as savings accounts go. Here’s what to keep in mind:

  • Not designed for frequent withdrawals—some may even limit how many transactions you can do per month
  • Not always accessible at ATMs, meaning you’ll need to visit a physical branch to access cash
  • Don’t come with their own debit cards (in most cases) or paper checks, as they’re not designed to pay bills

Although savings accounts typically offer higher interest than checking accounts, they’re not a replacement for a checking account. Make sure you’re in the market for a place to park cash for the short or long-term before you opt for a savings account. 

​​Choosing between a checking account and savings account

If you’re not sure which account is right for you, there are a few core considerations you can ask yourself to help decide. These include:

  • How often do I plan to use my account?
  • Do I want to be able to use a debit card and paper checks?
  • Do I understand the fees associated with each account?
  • What features would help me manage my finances?
  • Do I plan make more than six transfers a month out of my account?

If you plan to use your account often and want to pay bills, accept payments, use a debit card or write paper checks, then a checking account is for you. But if you’re in the market for an account that can help you grow your savings without needing frequent access to those funds, a savings account could be your best bet. 

It's also important to consider which accounts have features you’d like to use and fees you’d like to avoid.

Utilizing checking and savings accounts

Now that you understand the unique benefits associated with a checking account vs. a savings account, you may find that having both is the best solution. And in most cases, you’d be right. Having both a checking and savings account helps you enjoy the benefits of both.

Knowing the difference between checking and savings accounts will allow you to have two dedicated accounts. This can not only help you better manage your money, but it can also give you access to additional features like easier account transfers and overdraft protection. 

Ultimately it’s up to you to decide what your short and long-term financial goals are and how these accounts can help you reach them. In most cases, though, having both accounts at a minimum is the right way to go.

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