What is the difference between a checking and a savings account

Account Fees

Many banks require checking account holders meet some criteria; for example, to set up the direct deposit of paychecks into a checking account, the account owner must usually maintain a minimum balance or make a minimum number of transactions each month. When these criteria are not met, banks often charge users monthly maintenance fees. Banks may also impose ATM usage fees, overdraft charges, overdraft protection fees to avoid overdraft charges, and fees for online access and bill paying. These vary depending on the bank, with some banks and credit unions, like Ally, charging very few fees.

Table of Contents Show

Account Fees
Interest Rates
Debit Cards
Restrictions
References
Checking Account Basics
Savings Account Basics
What Is Better: A Savings or Checking Account?
Is a Debit Card for Checking or Savings?
The Benefits of Linked Checking and Savings
Minimum Balance Requirements
How Much Money Should I Keep in a Checking or Savings Account?
How To Choose a Checking or Savings Account
Is it better to have a checking or savings account?
Is a debit card a checking or savings account?

Most savings accounts are fee-free, as long as owners do not exceed their withdrawal limits. However, some banks, like Bank of America, require account owners keep a minimum daily balance or make a certain number of money transfers into the savings account every month to avoid account maintenance fees.

This short video explains the differences between savings and checking accounts:

Interest Rates

Checking accounts typically earn little to no interest, depending on the bank. Savings accounts always accrue interest. The interest rate depends on the bank, the type of savings account (e.g., see Money Market vs Savings Account), and the amount deposited, but is always higher than the interest rate on checking accounts.

As of May 2016, the highest interest rate on savings accounts (in the United States) is about 1%.[1] Online banks, like Ally and EverBank — those without traditional brick and mortar businesses — often offer higher-yielding accounts than can traditional banks, but some credit unions can be equally good, if not better.

Bill Pay

Several other online transactions are possible with a checking account. For instance, with online banking, an account owner can set up automatic bill pay for recurring payments like rent, water/electric bills, etc., and even make one-time payments.

Such transactions are usually impossible with a savings account, although one can transfer money from his or her savings account to a checking account.

Debit Cards

Checking accounts often come with debit cards that allow withdrawals from an ATM and pay for items in stores. Debit cards only allow users to spend money that is available in the account.

Savings accounts typically do not come with debit cards, so withdrawals must either be transferred to a connected checking account online, requested over the phone, or done in person at the bank.

Restrictions

There are no limits on the number of transactions (withdrawals and deposits) that can be made to or from a checking account.

Savings accounts are designed for occasional use, so they usually have restrictions on how often money can be withdrawn. The limit is typically three to six withdrawals a month, including electronic transfers and automatic payments. There is no limit to the number of deposits one can make into a savings account.

Usage

A checking account is typically used for regular spending and purchases, like paying bills, shopping for groceries, etc. While it is possible to withdraw money from a savings account at an ATM, by default ATMs withdraw cash from a checking account.

A savings account, as the name suggests, is used to save money for a longer period of time. The idea is to let that money accrue and not use it unless there is an emergency or until it is time to pay for college tuition or purchase a significant item, like a house or car.

References

Wikipedia: Savings account
Wikipedia: Transactional account

Checking Accounts
Savings Accounts
Which Is Better
Debit vs. ATM Card
Linked Accounts
Minimum Balance
How Much To Deposit
How To Choose

baramee2554 / iStock.com

The main difference between a checking and savings account is that a checking account is used for daily transactions, while a savings account is designed to help you grow money over time. Most people find it beneficial to have both accounts at their disposal for various financial transactions. Each serves a unique purpose. But what actually is the difference when it comes to a checking account vs. a savings account?

Checking Account Basics

Checking accounts are deposit accounts that let you write checks, pay bills or make other transactions online. Or, swipe your debit card as you buy everything from gas to your morning coffee, which means you don’t have to carry cash around everywhere to make purchases. Even if you don’t write checks, a checking account is the foundation of your personal banking.

Most employers will directly deposit your paycheck into your checking account, and you can set up automatic bill pay, with funds for your cellphone, credit card, utility bills and more coming straight from your account. With this convenient feature, you won’t forget to pay bills, helping you avoid late payment fees.

Savings Account Basics

A savings account is another type of deposit account that lets you earn interest on the money you keep at the bank. High-interest savings accounts and accounts with special promotions could net you even larger gains than you might get at your local bank.

Your paycheck can be directly deposited to a savings account, too, but since a savings account is designed to do just that — save your money — it isn’t your best option for frequent transactions. Many banks limit the number of free transactions savings account holders can make each month and charge a fee for exceeding that benchmark.

Many banks offer interest-bearing checking accounts, which makes it tempting to forgo a regular savings account. However, it’s still a good idea to keep a separate savings account to help you build an emergency fund or a fund for short-term goals such as a vacation or a large purchase. A savings account keeps your money out of sight while still giving you immediate access should you need it.

What Is Better: A Savings or Checking Account?

Checking and savings accounts are designed to meet different financial needs, so the “better” account is the one that best helps you achieve what you need to do with your money. Both carry FDIC insurance protection of up to $250,000, so a savings account isn’t any safer than a checking account — or the opposite.

Many people have multiple savings accounts. One can be for quick emergency cash, while others can be for long-term savings or to put money away for a house, wedding, vacation, car or other big expenses. That money for long-term use often is stored in online accounts that offer higher interest rates than at your local brick-and-mortar bank. The online institution TAB Bank, for example, currently offers a rate of % APY with no minimum balance and no monthly fees.

Here’s a look at key differences between checking accounts and savings accounts:

	Checking	Savings
Features	Typically includes a debit or ATM card	May come with an ATM card
Limits	No withdrawal limits	Usually up to 6 withdrawals per month
Interest-Bearing	Available on some accounts	Standard on all accounts; annual percentage yield varies by bank
Balance Requirements	Varies by bank	Varies by bank

Is a Debit Card for Checking or Savings?

First, it’s important to know the difference between a debit card and an ATM card.

A debit card is issued by your financial institution when you open a bank account, and it has multiple functions. You’ll use your card to deposit or withdraw money at an ATM, or to get money back with a purchase at a retailer that offers the cash-back option.

The card, if it has a Visa, Mastercard or Discover logo on it, can be used to pay for purchases at a retailer that accepts those cards. But you’re not buying anything on credit. Instead, the money to buy that pair of shoes will come straight from your bank account. You also can shop online with your debit card.

A debit card typically is issued to owners of checking accounts. Your financial institution could issue an ATM card with your savings account. The card you’ll receive with that account is a key difference between checking and savings account usage.

Compared to a debit card, an ATM card has limited functions. It is only used to get cash back, or at some banks and credit unions, make deposits at ATMs. You can’t complete a purchase online or in a store with just an ATM card.

The Benefits of Linked Checking and Savings

It could be beneficial to have a savings account at the same financial institution as your checking account. By linking the two accounts, you can transfer money from your savings account to your checking account to cover a scheduled online bill to be paid or a check you must write if your checking account balance is falling short.

Many financial institutions also allow you to cover a check with money in your savings account, if the check otherwise would bounce. While some banks might charge a service fee for that service, it will be lower than the fee — typically in the $35 range — that your bank will assess for a transaction returned for non-sufficient funds.

Chase, for one, doesn’t make clients pay if it has to dip into a savings account to cover a check through its overdraft protection program.

Minimum Balance Requirements

Some banks have minimum balance requirements to avoid maintenance fees. This balance requirement can be as low as $5 or as high as $25 or more, depending on the financial institution.

Many banks waive these fees for customers who meet other requirements, such as making a specific number of direct deposits or linking accounts within the bank.

How Much Money Should I Keep in a Checking or Savings Account?

Since checking and savings accounts earn little to no interest, it’s not always a wise decision to keep too much money in them. Any extra cash you have beyond an emergency fund is usually better used to pay down debt or invest in securities with a higher return.

Your checking account should have enough money to cover all your bills. In addition, you should have a buffer available to cover unexpected expenses or charges. The exact amount you need is a personal decision based on your own finances.

If you are unsure where to start on your savings, one way is to build your emergency fund. If you keep your emergency fund in a savings account, financial experts recommend keeping enough money there to cover three to six months’ worth of expenses.

How To Choose a Checking or Savings Account

Picking a checking or savings account is a personal choice. What makes one account right for you might not work for others.

Think about your financial goals and spending habits before choosing an account. Next, check out these features for the accounts you’re considering:

Fees: Monthly and one-time fees can quickly add up. Try to find accounts that will let you minimize them or avoid paying them altogether.
Incentives: Some banks will pay you money just for opening an account. Others offer incentives such as promotional interest rates — even for checking accounts.
Convenience: If you prefer having a brick-and-mortar location nearby, make sure the bank you choose offers one.
ATM network: Look for a bank that has fee-free ATMs near the places where you live and work.
Minimum balance requirements: There are plenty of free checking and savings accounts available. Choose one of these if you worry about keeping enough money in your account to avoid fees.

Every consumer needs a reliable bank to handle daily financial needs. Your checking account is the starting point for paying bills and everyday expenses. A savings account can be a valuable complement.

Allison Hache contributed to the reporting for this article.

This article has been updated with additional reporting since its original publication.

Is it better to have a checking or savings account?

Checking accounts are better for regular transactions such as purchases, bill payments and ATM withdrawals. They typically earn less interest — or none. Savings accounts are better for storing money. Your funds typically earn more interest.

Is a debit card a checking or savings account?

Is a debit card checking or savings? Debit cards are associated with checking accounts. Checking accounts also typically have checks. ATM cards and checks are not common for savings accounts.