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What's the Difference between a Checking and Savings Account?

A checking account is primarily for paying bills and does not earn interest. Savings accounts earn higher interest rates and are better for storing money.

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Checking vs. savings accounts

The primary difference between checking and savings accounts are earning interest and accessing your money.

Checking accounts are better for paying bills, ATM withdrawals, and daily purchases. But they are not great for saving money because they usually offer no or very low interest.

Savings accounts are great for storing money because they pay interest. They have a monthly limit on the number of withdrawals and so are not good for paying bills.

Checking Savings
What is its main purpose? Easy access to your money Saving money
What is it best for? Money that you plan to spend soon Money that you don’t need immediately
How should I use this account?
  • ATM withdraws
  • Paying bills
  • Daily purchases (grocery, coffee, etc.)
  • Debit card usage
  • Checks
  • Longer term savings
  • Building an energy fund
  • Saving up for a big ticket item (such as a vacation or car)
Do I earn interest? Sometimes

Rates are low or 0%.
Yes

Rates vary, but are usually higher than checking account rates.
Do I have access to my money? Yes

Withdraw as much as you’d like!
Limited

Maximum of six withdrawals a month, excluding ATM and in-person withdrawals.
Do I need to keep a minimum balance in my account? Sometimes

This depends on the bank.
Usually

This depends on the bank.
What are the main features?
  • Debit card
  • Checks
  • Direct deposit
  • Branch and ATM access
  • Online banking
  • Direct deposit
  • Branch and ATM access
  • Online banking
Are there fees? Sometimes

Most fees can be avoided.
  • Some fees include:
  • Overdraft fee
  • Monthly maintenance fee (can be avoided)
  • Out of network ATM fee
Sometimes

Most fees can be avoided.
  • Monthly maintenance fee (can be avoided)
  • Withdrawing above the 6 withdrawal per month limit

Checking accounts

Benefits
Checking accounts are great for paying bills. They offer debit cards and checks. You can make as many payments as you need without any fees.

Downside
Checking accounts usually do not offer any interest or if they do, it is very low. They are not a good place to store money that you will not be using any time soon.

Savings accounts

Benefits
Savings accounts usually offer higher interest rates and so are a great place for storing money that you won’t be using for a while.

Downside
However, the higher interest rates sometimes come with a higher required minimum balance. For example, you might be required to always have $500 in your savings account to avoid a monthly fee (of say $20).

You also cannot make unlimited free withdrawals and transfers. According to federal law, Regulation D, you cannot make more than 6 monthly withdrawals or transfers out of your savings account.

As a result, savings accounts are not great if you need to withdraw your money often.

Savings calculator

How much interest could you earn if you put your money into a savings account? Use our savings calculator and find out.

$
$
Annual contribution of $1,200
years
%
Interest is compounded monthly
Your savings
$11,929
in 5 years
Interest earned
$929
Starting balance
$5,000
Total contributions
$6,000
$100 per month over 5 years
If you start with $5,000, and save $100 each month (or $1,200 every year), then after 5 years, you will have $11,929, assuming an interest rate of 2.20%%.

Can I lose my money in a checking or savings account if the bank fails?

While you might not think that your bank will fail, banks have failed in the past. In fact, the Federal Deposit Insurance Corporation has a list of recent bank failures, with several banks failing in 2019.

What’s the best way to avoid losing your money in the case of a bank failure?

Store your money with banks that are Federal Deposit Insurance Corporation (FDIC) member banks or at credit unions that are part of the federally insured National Credit Union Administration (NCUA).

Why?

The FDIC will insure deposits in member banks up to $250,000. This means that if you have funds with a bank and that bank fails, you will recover up to $250,000. If you have more than $250,000 with that bank, those funds may not be recoverable in the event of a bank failure.

One way to have more of your money insured is to store money with different banks. If you store $250,000 with bank A and $250,000 with bank B and both banks fail, you will recover $250,000 from both.

The FDIC was established during the Great Depression by the 1933 Banking Act in response to bank failures. Prior to the FDIC’s creation, more than one-third of banks failed. With over 5,400 FDIC member banks, there are plenty of banking options to choose from.

Should I have both a checking and savings accounts?

The short answer is yes.

A checking account is great for paying for things, but terrible for saving money because it usually offers 0% or very low interest rates. Check out our [Inflation Calculator] to see the detrimental impact inflation has on the value of your money over time.

A savings account is terrible for paying for things (because of the monthly withdrawal limits), but great for saving money because it typically offers higher interest rates.

Should I have multiple checking and savings accounts?

Most people tend to have just one checking and one savings accounts. However, if you are trying to manage how much money you have available for spending and how much should be set aside for paying bills, you could consider have two checking accounts.

One checking account is your “bill paying” checking account. The other is your “spending” checking account.

To determine how much you should have in your “bill paying” checking account, add up your bills for the past year and divide that by the number of paychecks you receive (see the table below).

Transfer this amount into your “bill paying” checking account every payday. You then pay all your bills from this account.

The remaining money in your “spending” checking account is what you have to spend on movies, clothing, groceries, gas, and more.

How many paychecks do I receive?

Number of paychecks per year How often am I paid?
12 Monthly
24 Twice a month
26 Every other week
52 Weekly

Should I have a checking and savings account at the same bank?

The benefit is that it is easy to transfer money between accounts. Monthly maintenance fees may also be waived.

The downside is that you may not find the best interest rates.