Savings Accounts vs Checking Accounts - What Are the Differences?

Most people have both savings accounts and checking accounts, but do you know the differences? They may seem obvious, but we’ll go over everything you need to know about the differences between savings accounts vs checking accounts.

Most people have both savings accounts and checking accounts, but do you know the differences? They may seem obvious, but we’ll go over everything you need to know about the differences between savings accounts vs checking accounts.

Figuring out your personal finances can feel a bit like that game where you repeat a word until it sounds meaningless and unfamiliar. For instances, take savings accounts and checking accounts: what’s the difference? Do you need both? The main difference between these accounts comes down to how you access them, why you choose them and the fees/perks associated. Read on to find out the difference between a savings account and a checking account.

Bank Account Basics

Savings accounts are for long-term saving, so they’re hard to spend by design. Conversely, checking accounts are transactional, so money isn’t meant to stay in there a long time. This is the kind of account you use for recurring payments, like bills and to withdraw physical cash. 

If you’re new to banking, checking and savings might feel more blurred since so much banking is done online. For one thing, it used to be that a checking account meant a stack of checks and deposit slips. However, if you have a debit card, you have a checking account. 

The way you open either account is generally the same process. You’ll need to provide identification, funding information and a minimum deposit to get them started. You typically keep less money in a checking account, so in order to see a return, the bank has to attach fees.

How To Choose Between a Checking and Savings Account

Ideally you would have both a checking and savings account. With that being said, everyone has different needs, goals and preferences when it comes to banking. So how should you decide which configuration is right for you?

If You Need Your Money Fast

Simply put, a checking account is for making purchases. You can access your checking account with online and mobile banking as well as ATMs, debit cards and checks. Many checking accounts promise a large ATM network so you’ll be able to reup wherever you want. A large ATM network is also desirable because when you withdraw from banks other than your own, there’s a fee attached.

When you place your money with a bank, you’re essentially loaning them since the money goes towards the rest of their operations. The bank has an incentive to hold your money longer because they can loan it out in that time. For this reason they restrict the number of savings account withdrawals to six times a month. This is actually a federal law making sure that banks have enough money at a given time to operate. So in short, you can’t really make regular purchases with a savings account.

If you’re looking to Grow Your Money

Savings accounts hold your money so it can grow over time. Most accounts calculate interest as your annual percentage yield or APY. This means if you place $1,000 in your savings account with an APY of .09%, and you don’t touch your account, your balance will grow by $90 at the end of the year. Note that different banks offer different interest rates, so be sure to check out our other guides for the best account plans. 

By nature, checking accounts don’t earn you interest. There is such a thing as interest-bearing checking accounts, but these come with pitfalls as they weren’t designed to hold money for long.

If You want to Pay Bills

Online and mobile banking has made things worlds easier than before. A checking account lets you pay bills online and take advantage of certain benefits. One feature that some checking accounts offer now is automatic sweep. At the end of the month, you can have the extra money swept into a savings or brokerage account. Banks are always trying to increase their security and fraud protection. Many checking accounts today require no minimum balance.

Even though so much of what we do daily feels automated, there’s human power behind everything we do. Banks have to do oversight on your accounts, hence a maintenance fee. What you want to look for is high interest rates and low service fees.

You might be wondering why we haven’t mentioned credit cards yet. That’s because a credit card is totally different from a checking or savings account. However, to pay your credit card bills, you’ll need to connect a bank account. You might think it’s enough to have a debit card for going cashless, but when you make purchases with them you’re not building your credit score. 

The Bottom Line on Checking Accounts vs. Savings Accounts

For most people’s needs, having both accounts makes the most sense. One downside of this is that you might not find the best checking and saving at the same bank. However this isn’t a big inconvenience because your daily interaction with the account would be through bills and the ATM.

If you have to pick one and you’re trying to decide where to keep your money, a savings account is the safest bet. It’ll deter you from impulse spending, and it’s a good way to start investing if you’re not ready for stocks and mutual funds.