Checking vs. savings account: What’s the difference and which do I need?

A smiling man takes a picture with his smart phone of a check or paycheck for digital electronic depositing.Image: A smiling man takes a picture with his smart phone of a check or paycheck for digital electronic depositing.

In a Nutshell

Checking accounts are intended for daily transactions, while savings accounts are designed to save your money and help it grow.
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Trying to decide whether you should apply for a checking or savings account?

Why not both? 

These two types of bank accounts often go hand in hand. While a checking account gives you a way to pay for purchases and bills, a savings account will help you set aside money for the future. Because they have different purposes, there could be room for both in your long-term financial plans.

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

There are a few key differences between checking and savings accounts. While savings accounts encourage you to grow your money, checking accounts make it easier to spend.

That’s why savings accounts typically pay you interest and charge fewer fees — but also make accessing your cash slightly more complicated. Checking accounts, on the other hand, make it easier to pay for things, often by way of checkbooks, debit cards, ATMs and online bill pay.

What to know about checking accounts

How checking accounts work

Checking accounts come in all shapes and sizes: There are regular checking accounts, no-fee checking accounts, interest-bearing checking accounts, rewards checking accounts, online checking accounts and second-chance checking accounts. But at their core, all of these different types of checking accounts help you pay for things.

When you put money into a checking account, you can make as many withdrawals as you need to cover your routine expenses. As the name implies, some checking accounts provide checks that you can use to make payments. You also might have access to a debit card that you can use to make online and in-store purchases and ATM withdrawals. Setting up recurring online bill payments is another common way to access and use funds from a checking account.

Checking accounts usually don’t pay interest. Interest-earning checking accounts, like high-yield checking or money market accounts, may have limits on the number of transactions you can make each month, or an account minimum balance to avoid fees. Before deciding which kind of checking account is best for you, check with your bank or credit union to understand all the fine print.

Why you need a checking account

Simply put: A checking account makes it easier to pay your routine or daily expenses. If you follow a budget, you can leave just enough money in your checking account to cover bills and other necessities and put the rest in savings.

How much do checking accounts cost?

The fees you’ll be charged for a checking account vary by bank. Some banks might charge a monthly service fee (also known as a monthly maintenance fee) if you don’t meet their minimum balance requirements. You may be able to get those fees waived if you meet other requirements, such as having your paycheck direct deposited into your account.

If you want to write checks, you may have to buy a checkbook. You could also be charged fees for using out-of-network ATMs to withdraw money from your account.

If you spend more money than you have, you could also be hit with an overdraft fee or nonsufficient funds fee. When opening your account, be sure to understand when you may be charged with an overdraft fee, and how you can opt out of costly overdraft protection programs.

How to choose a checking account

When choosing a checking account, you’ll want to figure out how you plan to spend your money. Here are some of the questions you should ask yourself.

  • Will I regularly write checks? 
  • Will I regularly use a debit card to pay for online and in-store purchases? 
  • Do I need access to cash from an ATM?

Some checking accounts offer all of these financial tools, but others do not. Once you figure out how you plan to use your checking account, you can look for one that offers the features that matter most to you.

What to know about savings accounts

How savings accounts work

Savings accounts help you grow your money. When you deposit money into your savings account, the bank pays you interest.

Because the goal is to help you build your savings, the bank might limit how many withdrawals you can make each month from your account. So it’s best to deposit money that you won’t need to access frequently.

Why you need a savings account

A savings account can help you prepare for bigger expenses. You can use a savings account to build an emergency fund, pay for an unexpected expense or save for major life goals like buying a home or car, paying for college or going on a vacation.

While you may not earn as much interest as you could with other investments, you can rest assured that your money is protected up to a certain amount by the FDIC for most bank accounts and by the NCUA for most credit union accounts.

How much do savings accounts cost?

As with checking accounts, the fees you’ll be charged for a savings account vary by bank.

Savings accounts are supposed to help you grow your money. But if you treat your savings account like a checking account by repeatedly withdrawing money, your bank might charge a fee for making more than six withdrawals per month.

Your savings account might also charge a monthly service fee if you don’t meet the minimum balance requirements. 

While these fees are common at traditional brick-and-mortar banks, it may be possible to find an online savings account that charges no fees.

How to choose a savings account

Before you apply for a savings account, it’s important to figure out what features are most important to you. Here are some of the questions you may ask yourself.

  • Do I want a savings account that pays a high interest rate? 
  • Do I want a savings account that charges no fees?
  • Would I rather have a savings account that gives me the ability to visit a local branch and talk in person to a banker I trust?

Online savings accounts might offer higher interest rates and fewer fees, but they don’t have a physical branch you can visit like a traditional brick-and-mortar bank.

What’s next?

Checking and savings accounts go together like two peas in a pod.

Instead of choosing between them, you might consider getting one of each. You could keep enough money in your checking account to pay your bills and other regular purchases — and put the rest of the money that you don’t need to spend right away into your savings account, so it earns interest.

About the author: Tim Devaney is a personal finance writer and credit card expert at Credit Karma. He’s a longtime journalist who prides himself on being a good storyteller who can explain complex information in an easily digestible wa… Read more.