Checking vs. Savings Account: Understanding the Differences

Checking and savings accounts are both effective tools for managing your money, but they have key differences. A checking account gives you easy access to your funds for everyday use. A savings account lets you store money for short-term goals and emergencies. Both accounts can earn interest, but savings accounts usually have higher rates.

Learn more about the differences between checking and savings accounts and how to choose the right bank account for your needs and goals.

What is a checking account?

A checking account is a type of spending account you can open at a bank or credit union. You can use it to pay bills, transfer money, write checks, make ATM transactions, or make everyday purchases. These accounts may come with a free debit card and checkbook to facilitate these transactions.

Many checking accounts let you set up direct deposit with your employer to receive your paycheck directly into your account. You may also get access to online or mobile banking, which lets you manage your account, track spending, make transfers, and pay bills — like credit card minimums — without going to a physical branch.

“A checking account is a great first step toward financial freedom as it allows you to keep your hard-earned money safe, while unlocking the ability to make online purchases by giving you a debit card that can be used much like a credit card for in-store online purchases," says Geri Hopkins, chief operations officer at Skyla Federal Credit Union.

What is a savings account?

A savings account is used to store money. These accounts usually earn more interest than checking accounts, so your money can grow more quickly. Savings accounts could be a better option for short-term financial goals and emergencies.

Unlike checking accounts, savings accounts aren’t meant for everyday spending. Because of this, they don’t generally feature check-writing privileges or come with a debit card. This can make your funds less immediately accessible.

Before April 2020, savings account holders were limited to six withdrawals per month. While this rule no longer exists, some banks and credit unions set their own limits.

Key differences between checking and savings accounts

Choosing the right type of bank account doesn’t have to be hard. But it’s important to understand the main differences between checking and savings accounts — particularly regarding their uses, rates, accessibility, limits, and fees.

Purpose and usage

A checking account lets you manage your everyday finances in one place. But while checking accounts include many features — like online bill pay and check-writing — their main purpose is to let you easily access your money when you need it.

The primary benefit of savings accounts is that your money can earn interest, usually at a higher rate than checking accounts. You might not have immediate access to your funds, but you can save up for short-term financial goals and emergencies.

Whether you choose a checking or savings account, look for one that’s insured by the Federal Deposit Insurance Corporation (FDIC). FDIC insurance protects your money (usually up to $250,000 across all accounts at that bank) in the event of a bank failure.

Interest rates

Both checking accounts and savings accounts can earn interest, but savings accounts usually have higher rates. The average savings account annual percentage yield (APY) is 0.41%. The average checking account APY is 0.07%.

Some financial institutions offer higher rates, which can help your savings grow faster. At Ally Bank, for example, checking accounts earn 0.10% APY, and high-yield savings accounts earn 3.70% APY.

Access and transaction limits

Checking accounts generally provide you quick, easy access to your funds. If you set up direct deposit, you can also get paid early — sometimes up to two days in advance.

With a savings account, you may need to transfer money from savings to checking to be able to use it. Transfer times vary by bank, but can take anywhere from a few hours to 1-2 business days.

Checking accounts don’t generally come with withdrawal or transaction limits. Some savings accounts have a maximum of six monthly withdrawals. It depends on the bank.

Fees and charges

Some financial institutions charge fees for opening and maintaining a checking or savings account. Common fees include:

• Monthly maintenance fees ($5 to $25 per month)
• Out-of-network ATM fees ($1.50 to $3.50 per transaction)
• Overdraft fees ($25 to $35 per overdraft)
• Stop payment or returned check deposit fees ($20 to $30 per check)
• Wire transfer fees (varies)
• Check fees ($30 per check)
• Minimum balance fees ($5 per month)
• Account inactivity fees ($5 to $20 per month)
• Foreign transaction fees (1% to 3% of the transaction amount)

You may be able to avoid or waive some of these fees by:

• Keeping a minimum balance in your account
• Only using in-network ATMs
• Avoiding overdrawing from your account
• Setting up direct deposit (checking account)
• Linking your checking and savings account
• Setting up overdraft protection

Pros and cons of checking accounts

Checking accounts come with many features that make them convenient and user-friendly, but they also have a few disadvantages:

Pros and cons of savings accounts

Here are the main savings account benefits and drawbacks:

How to choose between a checking and savings account

While many people have both checking and savings accounts, you might prefer to only open one or the other. Here are some considerations when making your decision.

Assessing your financial habits and goals

Checking accounts are geared toward spending, while savings accounts are meant for saving. Take a moment to figure out your financial goals and which type of account best suits your needs.

“If your goal is to simplify life by depositing paychecks, maybe even automatically, make purchases in stores and online with a debit card, set up automatic payments for things like an auto loan, or add a layer of protection, a checking account would be the ideal tool for you,” Hopkins says. “If your goal is to save money, build an emergency fund, or put your savings to work by earning interest, a savings account would be the ideal tool for you.”

Considering accessibility needs

Ask yourself how accessible you need your money to be.

Checking accounts are made for daily spending, which is why they often come with a debit card, online bill pay, and check-writing privileges, among other things. The primary purpose of a savings account is to store your money so it can grow.

It might take longer to access the money in your savings account, since you’ll typically need to schedule a transfer from it to your checking. If you need the money instantaneously, a checking account may be better.

Evaluating interest rates and fees

Checking and savings accounts come with various fees, though you might be able to avoid them.

Certain fees, like returned check fees or out-of-network ATM fees, are much more common with checking accounts. Others, like account maintenance or minimum balance fees, are common across both account types.

Review your bank or credit union’s fee schedule to determine what they charge and how to avoid them.