Checking vs. Savings Account: Which Is Right for You?

Both checking and savings accounts can be powerful tools for financial planning to budget, save and reach financial goals. Selecting the right bank account for your needs can lead to significant long-term savings. While savings and checking accounts help you manage money, learning how and when to use each can make saving easier. Read on to understand the uses, pros and cons of checking versus savings accounts.

Understanding Checking Accounts

A checking account, sometimes called a current account, is a bank account that typically comes with a debit card and, as the name implies, checks. This makes it easy to access funds in the account via ATM, bank transfer, check or debit card payment.

Checking accounts typically offer low, if any, interest on money kept in the account. You can also find checking accounts with low or no monthly fees. Some banks and credit unions offer free checks when you open an account. 

Another important feature of a checking account is that there’s often low or no minimum balance requirement, and many come with overdraft protection. In addition, checking accounts from banks insured by the Federal Deposit Insurance Corp. (FDIC) and credit unions insured by the National Credit Union Administration (NCUA) are insured for up to $250,000 per account holder, so your funds are protected even if the bank gets into financial trouble. 

A checking account is the best option for managing day-to-day expenses such as paying bills, debit card transactions and writing checks. It also lets you link to budgeting apps to create and manage your monthly expenses and hit savings goals. Learn more about how to open a checking account here. 

Advantages

Checking accounts have numerous advantages, making them the best choice for everyday transactions. These include:

• Low or no monthly fees
• FDIC or NCUA insurance
• Easy access to funds via check and debit card
• No withdrawal limit
• No or low minimum balance
• Easy to open 
• Widely available

Disadvantages

While checking accounts have a lot of advantages, they are not without a few distinct disadvantages. These include:

• Low or no interest earned on account balance
• Possible monthly maintenance fees, overdraft fees, out-of-network ATM fees
• May require a minimum balance

Understanding Savings Accounts

As the name implies, a savings account is designed to help you save more. For this reason, funds are less accessible than in a checking account. You generally won’t get a debit card or checks with a savings account. Instead, a savings account stores funds for emergencies, short-term goals and other short- to medium-term needs. While the federal government has removed withdrawal limits on savings accounts, most banks still limit you to six free monthly withdrawals or transfers. 

A regular savings account earns little interest, usually less than 1% to 2%, but a high-yield savings account could offer interest rates up to 5%. Part of the reason savings accounts can offer higher annual percentage yields (APY) is because they are designed to store funds over a longer term.

Like checking accounts, savings accounts are FDIC-insured or NCUA-insured for up to $250,000 per account holder, so your funds are protected. Because FDIC or NCUA insurance is offered per account holder, account type and financial institution, if you and your spouse share a savings account, it would be FDIC insured up to $500,000. If you also share a checking account — a different account type — it would also be insured up to $250,000 per account holder for $500,000 total. Learn about different types of savings accounts you can consider and the features of a savings account. 

Advantages

Savings accounts have numerous advantages to help you plan for your short- and long-term goals. Here are a few reasons you should consider a savings account:

• Easily save for specific goals in separate accounts, such as an emergency fund, vacation, mortgage down payment or wedding
• Earn interest up to 5.5% so your savings don’t lose spending power over time
• Easily access funds for an emergency or other big expense as needed
• Easily transfer between accounts online
• Set up additional account restrictions to protect your savings and avoid the temptation to spend your savings
• FDIC or NCUA insured, so your savings are protected 

Disadvantages

Savings accounts also have a few disadvantages. Here’s what you’ll want to consider: 

• May come with high monthly maintenance fees
• Not all offer strong APY interest rates
• Monthly withdrawal limits
• No debit card or checks to access funds

Checking Account vs. Savings Account: Key Similarities and Differences

While both savings and checking accounts are bank or credit union accounts that are FDIC or NCUA insured, their purposes have key differences. Both can help you take control of your finances, save more and build financial freedom, but how you use and access funds varies. For many people, effective money management incorporates both checking and savings accounts. 

Checking accounts offers easy access to funds, making it easier to pay bills, transfer funds and access cash when needed. In contrast, savings accounts limit access to funds, potentially helping you save more. They also offer better interest rates to help your money grow. 

For example, if you kept a $5,000 emergency fund in a high-yield savings account with 5.5% APY, after 20 years, that $5,000 would grow to $14,588. In a checking account with an average interest rate of 0.01%, it would have only grown by $10. 

For that reason, combining a checking account with a savings account can increase savings growth while facilitating easy budgeting, payments and access to cash. You can transfer funds regularly from checking to savings after paying bills and other expenses and watch your savings grow. If you want to save for distinct goals, such as a vacation, wedding or mortgage down payment, and keep an emergency fund, you could open multiple savings accounts or subaccounts to keep funds separated by goals. 

Choosing Between Checking and Savings Accounts

Whether you should choose a checking or savings account is based on personal financial goals and needs. Choosing at least one checking account and one savings account with no monthly maintenance fees can be a smart financial move for most people. This allows you to make payments and access cash whenever you want while having a space to earn interest and build savings. 

If you’re considering opening a new account and are unsure whether you need to open a checking or a savings account, consider transaction frequency, liquidity, the need for earning interest and other factors like maintenance, transaction, ATM and overdraft fees. 

A checking account is usually the right choice if you’re looking for an account to access cash or make regular payments. If you want to save for a specific goal or focus on building your savings, a savings account can help you earn higher interest. Whichever account you decide to open, be sure to compare bank fees so that you’re not paying fees each month.

Final Tips on Selecting Savings Account vs. Checking Account

Usually, you don't want to consider a checking account versus a savings account. Instead, get both. Be sure to find accounts with no monthly fees and low ATM, withdrawal or transfer fees to save more. To save more, look for banks offering signup bonuses like free checks or fee-free debit card withdrawals. Organizing at least one checking and one savings account means you can make daily expenses while building long-term savings. Review the best high-yield savings or checking accounts here to get started. 

Frequently Asked Questions