By Gayle SatoChecking Account vs. Savings Account: What’s the Difference?
By Gayle Sato
Quick Answer
A checking account helps you actively manage your income and expenses, and generally offers a range of convenient ways to pay. A savings account helps you set money aside as an emergency fund or to meet future goals like saving for a down payment on a car.
Checking and savings are two types of deposit accounts that help you manage your money effectively. Although checking and savings accounts share similar features, checking accounts are typically used for everyday spending, while savings accounts are used to set aside funds and earn interest.
Because checking and savings accounts serve two different purposes, they don't work exactly the same way. Here's how checking and savings compare:
| Checking Account | Savings Account | |
|---|---|---|
| Purpose | Useful for your daily financial activity: deposits, bills, expenses and spending | Encourages saving toward emergencies or long- and short-term goals by keeping savings separate |
| How it works | Provides convenient payment options: debit, payment apps, digital wallets, online bill pay, ATMs and checks | Pays interest on your savings balance, so your money grows |
| Transaction limits | Unlimited withdrawals, payments and transfers | Withdrawals and transfers may be restricted or subject to fees if you exceed a certain threshold |
| Interest paid | Typically none, but some types of checking accounts do pay interest | Rates vary based on the type of savings account, your balance, your bank and the going rate |
| Minimum balance requirement | Many accounts don't require a minimum balance; if they do, requirements are often small, between $25 and $100 minimum daily balance | Depends on the type of savings and your bank; minimums can range from $0 to $25 up to $1,000 or more |
| Minimum deposit | Many don't have a minimum deposit requirement; others may require between $25 and $100 to open an account | Depends on the type of savings account and your bank |
| Fees | Although fee-free checking exists, many checking accounts include (waivable) monthly maintenance fees and out-of-network ATM fees, overdraft fees, check fees, stop payment fees, nonsufficient funds fees and wire transfer fees | May include monthly maintenance fees (often waived with minimum balance), plus common savings account fees such as returned item fees, wire transfer fees, inactivity fees, overdraft fees and excess transaction fees |
What Is a Checking Account?
A checking account is a bank or credit union account that allows the account holder to receive deposits and make payments. Checking accounts are sometimes referred to as transaction accounts because that's what they do best. Here is a quick rundown of things you can do with a checking account:
- Pay in-store or online with a debit card
- Withdraw cash from an ATM
- Pay bills online or using an app
- Set up automatic payments
- Connect to a peer-to-peer payment app like Venmo or Cash App
- Transfer money to other bank accounts
- Write checks
Checking accounts are easy to monitor using a banking app or your bank's website. Many checking accounts allow you to set up transaction alerts that help you keep an eye on monthly spending and payments, and monitor transactions against fraud.
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What Is a Savings Account?
A savings account is a safe place to accumulate money for future use. Savings accounts earn interest, which helps grow your money as you build up an emergency fund or save toward goals like putting a down payment on a car. Savings accounts sometimes limit the number of withdrawals or transfers you can make in a month without incurring fees, but that's in keeping with the purpose of savings: This is primarily a place to save, not spend, your money.
High-yield savings accounts function much like regular savings accounts, but offer much higher interest rate yields. Around the time of this writing, top-paying high-yield savings accounts have annual percentage yields (APYs) of 4% to 5%, while regular savings accounts average less than 1%.
Learn more: How to Choose a High-Yield Savings Account
What's the Difference Between Checking and Savings Accounts?
The primary difference between these accounts is that checking is for transactions and savings is for—well, savings. Though there's overlap in the way these account types function, each one is better at doing its own thing. Checking accounts provide a convenient, secure way to make purchases, pay bills, send money and manage your day-to-day finances. Savings accounts are a great place to stash money and earn interest.
Do You Need Both Savings and Checking?
You aren't required to keep both a savings and a checking account, but having both can make it easier to manage your money. Savings and checking accounts complement each other. If you choose your accounts wisely, you'll get payment flexibility and powerful digital money management tools to keep your checking account operating smoothly, and a competitive return on your savings to help maximize the dollars you keep in reserve.
How Much Money Should You Keep in Your Checking Account?
Consider these three basic rules for keeping your checking account fully funded:
- Cover your expenses. Use your budget to determine how much money flows into and out of your account every month, then make sure your deposits are at least equal to your spending and payments.
- Maintain your minimum balance. If your account has a minimum balance requirement (or an average minimum daily balance), make sure your balance doesn't dip below the required level to avoid paying fees.
- Consider a cushion. Save yourself the trouble and expense of going into overdraft (and incurring overdraft fees) when you spend more than anticipated or have a hiccup with your direct deposit. Keeping an extra month's worth of expenses in your checking account as a cushion is safe, but even an extra few hundred dollars is helpful.
How Much Money Should You Keep in Your Savings Account?
Basic savings can include an emergency fund and sinking funds which you designate to help save toward long- and short-term goals:
- Emergency savings: Experts recommend keeping at least three to six months' worth of necessary expenses in an emergency savings fund.
- Sinking funds: You may also want to use your savings account as a sinking fund to save toward specific goals. Major goals include saving toward a down payment on a home or car; minor goals might include saving for a vacation, holiday gifts, furniture or luxury items.
Tip: If you have ample savings set aside in your savings account(s), consider branching out. You may want to contribute more to tax-advantaged retirement accounts, college savings plans or health savings accounts. Or, this may be a good time to learn how to invest.
Learn more: Signs You're Keeping Too Much in Savings
What Do You Need to Open a Checking or Savings Account?
Plan to provide some basic documents to verify your identity and get your accounts set up, whether you're opening a checking or a savings account. Here's what you'll need:
- Social Security number or taxpayer identification number
- Current government-issued identification, such as a driver's license, passport, military identification card or state identification card
- Proof of address such as a utility or other bill showing your home mailing address
- Date of birth
- Contact information
Frequently Asked Questions
The Bottom Line
Checking and savings are both essential accounts that, together, help you keep your finances on track. A checking account helps you manage income and expenses. A savings account keeps some of your money safely set aside, where it can earn interest and grow.
If opening checking and savings accounts is part of a larger effort to stay on top of your finances, you can double-check your progress by checking your credit report regularly. Your credit report shows your active loan and credit accounts, as well as your payment history on those accounts. You'll get an overview of how you're managing credit as part of your overall financial health.
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About the author
Gayle Sato
Gayle Sato writes about financial services and personal financial wellness, with a special focus on how digital transformation is changing our relationship with money. As a business and health writer for more than two decades, she has covered the shift from traditional money management to a world of instant, invisible payments and on-the-fly mobile security apps.
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