Checking account vs. savings account: The differences

If you’ve just started managing your own money, you’ve probably heard about the two main types of bank accounts: checking and savings. Since 94% of U.S. households have a checking or savings account, chances are you already have one of these types of accounts. However, you might still be unsure about how they differ and why you should choose one over the other.

Since financial literacy is necessary to achieve financial freedom, this article will explain the differences between checking vs. savings accounts. You’ll learn the purposes each one serves, the fees you might incur, and whether you should have one or both.

What’s the difference between checking and savings accounts?

At the most basic level, the difference between a checking account vs. a savings account is this: You use a checking account for general everyday spending and a savings account to save funds and earn interest.

You can quickly and easily access funds stored in a checking account to use for everyday expenses on an ongoing basis. 

As the name implies, money saved in a savings account builds toward more long-term financial goals. Think things like purchasing a home, funding retirement, or saving for a child’s education. Savings accounts earn interest over time to aid in those efforts. Ideally, you’ll limit withdrawals from your savings account to maximize the interest benefit. 

Here is a comparison chart highlighting the main differences between the two account types:

	Checking account	Savings account
Purpose	Withdraw money for everyday spending and transactions	Save money for long-term goals and earn interest
Access to funds	Easily accessible; frequent withdrawals	Limited withdrawals; typically not for daily expenses
Interest earned	Generally lower or no interest	Higher interest rates; often compounded
Fees	Usually has monthly maintenance fees	Minimum balance fees; can be waived under certain conditions
Minimum balance requirement	Low or no minimum balance required	Often requires a minimum balance for optimal interest

What is a checking account?

A checking account enables you to make unlimited deposits and withdrawals through various methods. You can transfer funds, make payments, and use automatic teller machines (ATMs) to withdraw or deposit funds whenever you want. Checking accounts are mainly favored for making everyday transactions and managing living expenses. You can open one individually or with a partner in the form of a joint account.

Checking accounts were originally named such because they allowed you to write paper checks. You can still do that, but paper checks are not all that popular these days. More and more, people are using debit cards linked to their checking accounts or payment apps to transact.

You can open a checking account through financial institutions like banks or credit unions. Look for banks that offer Federal Deposit Insurance Corporation (FDIC) insured accounts or federally insured credit unions covered through the National Credit Union Share Insurance Fund. These insured accounts cover your deposits up to $250,000 per depositor ($500,00 for joint accounts). This means that if the bank or credit union fails, you should be able to retrieve your funds up to the defined limit.

How to access money in a checking account

Financial institutions provide various ways to use and access your checking account funds for seamless money transfer. This includes debit cards, checkbooks, and mobile and online banking apps. You can also withdraw and deposit cash using an ATM. Many use their banking apps to manage their funds, track expenses, or send money to other people—often via third-party transfer services.

An external bank transfer—often via the Automated Clearing House (ACH) network, a US electronic network that facilitates financial transactions—is another popular option for sending money to another bank account. Many use these types of transfers to pay bills (utilities, rent, mortgage, credit cards, etc.) and receive direct deposits. Bill payments often require you to provide your checking account’s routing and account numbers to the provider, though many banks enable you to make and schedule them through their online or mobile platforms.

Your credit card will be separate, even if it’s with the same bank. You’ll make credit card payments by transferring money from your checking account. 

Checking account fees

Most banks charge several fees to checking account holders. Some recur monthly, while others you pay every time you access a certain service. 

Here’s a list of the most common checking account fees:

• Maintenance fees: Charged every month or year
• Overdraft fees: Applied when you spend more than your account balance
• ATM fees: For using out-of-network ATMs
• Paper statement fees: For receiving printed documents or reports
• Foreign transaction fees: For exchanging or making transactions involving foreign currencies
• Wire transfer fees: For sending or receiving wire transfers
• Excess transaction fees: For exceeding the allowed number of transactions per month

Benefits of checking accounts

There are several advantages to opening and actively operating a checking account. Some of the most common include:

• Withdraw your money anytime, anywhere: You can access an expansive network of ATMs to withdraw your funds using a debit card.
• Get paid quickly and without added risks: You can set up direct deposits with your employer to get your money right away on payday. 
• Bill payment services: Many checking accounts allow you to automate and manage your recurring payments, such as bills and monthly subscription fees.
• Keep a record of your transactions: Through online banking and mobile apps, you can oversee your financial transactions and keep your monthly expenses and balance under control.
• Have peace of mind with intensive security: Banks and credit unions that offer checking accounts often have extensive security in place, including advanced cybersecurity measures and protection against fraud.

What are savings accounts?

A savings account is where you store money and earn interest. These accounts bear interest, which helps grow your savings faster. The interest you earn will vary by bank, credit union, and savings account type. 

Exactly how much you earn in interest will depend on the account’s average percentage yield (APY). For example, an account with a 1% APY will earn $10 on a $1,000 balance over a year. High-yield savings accounts typically offer the best returns on your money (often in the 4–5% range), but these rates frequently fluctuate due to market movements.

How to access money in a savings account

Saving accounts typically allow only a limited number of withdrawals through an account routing number. More often than not, they also don’t offer a debit card or checkbook to use to take money out, only the option to transfer funds to your checking account.

You can always withdraw the interest you’ve earned, but you could also leave it and allow it to compound further over time. This can help you generate the greatest earnings in the long run.

This design makes savings accounts a go-to option for storing your money instead of using it regularly. When comparing savings vs. checking accounts, the fact that savings accounts earn interest and often limit transactions stands out as the most glaring difference. 

Savings account fees

While saving accounts are mostly used to grow funds through interest, they are also associated with some fees. However, unlike checking accounts, you can often get your bank to waive these fees.

Here is a list of the most common fees and ways you might be able to get around them:

• Monthly maintenance fees: These are usually waived by maintaining a minimum balance.
• Excess withdrawal fees: These are often avoided by using your checking account to make withdrawals.
• Paper statement fees: These are often waived by opting for electronic statements through online banking.
• Account closure fees: To avoid these fees, check the minimum time you need to keep the account open before closing it.
• Inactivity fees: Make regular deposits or use your savings account to pay recurring monthly bills to keep the account active.

Note that whether these workarounds apply to your savings account will depend on the specific terms and conditions set by your bank or credit union.

Benefits of savings accounts

There are various benefits to opening a savings account. Here are some of the most common advantages:

• Earn interest on your account balances: This is the most basic yet biggest benefit of having a savings account.
• Easier to save money with the restrictions that prevent spending: The restrictions on withdrawals and lack of debit cards or checks act as additional money-saving steps.
• Fulfills a variety of financial goals: Saving money is the basis for achieving many of your life and financial goals, such as saving for a down payment or for your retirement plan.
• A ladder to higher investments: You can learn how to better manage your money and build wealth or take the next step into higher-stakes investments. 
• Peace of mind in case of emergencies: A savings account is a reliable place to draw from when something bad happens, like losing your job or facing unexpected medical expenses.

Should you have a checking account or a savings account?

In learning the differences between checking vs. savings accounts, you may have concluded that it makes sense to have both. This covers all your bases. You’ll not only be able to make everyday transactions with ease, but you’ll have a place to save funds and build toward your financial goals. It’s typically easy to open both types of accounts at the same financial institution. 

If you’re interested in learning more about becoming an expert in your own personal finances, check out our self-paced financial literacy curriculum for individual learners. Build your financial confidence today.