Checking vs. Savings Account: What Are the Key Differences?
Updated November 5, 2024 at 10:26 am
Key Takeaways - Understand the purpose of these accounts: a checking account is best for everyday financial needs, while a savings account is the best option for individuals wishing to reach long-term savings goals.
- Savings accounts usually have much higher interest rates than your standard checking account.
- Checking accounts offer far more accessibility and flexibility when it comes to accessing funds through debit cards and checks.
- Look out for the fine print as checking and savings accounts will have varying fees and balance requirements at different financial institutions.
- And remember, you want a checking or savings account with a bank that offers exceptional customer service.
It’s November 2024, and there is still time to determine whether a checking or savings account is right for you. We have compiled a curated list of these two financial instruments’ key elements, features, perks, and drawbacks to make the decision process a smidge easier.
Truthfully, checking and savings accounts are a tale of the present and future: a checking account is an excellent option for addressing present and immediate financial needs, while a savings account is a prime financial instrument to help you save for future, long-term goals.
Savings Account: Pros and Cons Explained for the Everyday Account Holder
A savings account gives you an outlet to stash money that’s earmarked for long-term financial needs—like saving for a down payment on a house or putting money away for an emergency fund.
The Pros of Savings Accounts
- Almost always, you will find higher interest rates and APYs than traditional checking accounts
- Potentially, no initial deposit or a small deposit to begin higher-interest earnings on savings
- Deposits are insured by the FDIC for up to $250,000
The Cons of Savings Accounts
- Normally, no debit card attached to the savings account
- Usually, no check-writing capabilities
- Potential monthly withdrawal limit and penalties for exceeding this withdrawal limit
Checking Account: Pros and Cons Explained for the Everyday Account Holder
For many Americans, a checking account represents the foundation of their financial lives. A checking account offers a place for you to keep your money to cover everyday expenses, enabling you to write checks, use a debit card or make electronic transfers.
The Pros of Checking Accounts
- Ability to write checks and use debit card for easy day-to-day transactions
- Easy access to money for paying bills and withdrawing funds
- Checking deposits are insured by the FDIC up to $250,000
The Cons of Checking Accounts
- Usually no ability to earn interest
- Potential for monthly fees
- Possible minimum balance requirement
A Note About FDIC Coverage for Checking and Savings Deposits
In the U.S., all banks are required to have FDIC insurance, which protects deposits up to $250,000 per depositor, per institution, and per account ownership category. Although it’s exceedingly rare for a bank to lose FDIC coverage, a bank cannot operate without this coverage.
If a bank fails, the FDIC intervenes and places the institution into receivership. During this process, another financial institution typically acquires the failed bank’s assets and assumes responsibility for its deposits through a bidding process. The FDIC invites other financial institutions to bid on the failed bank, and the institution with the winning bid acquires the bank’s assets and liabilities, such as customer deposits.
What Exactly Is a Savings Account?
A savings account allows you to safely put aside money for future financial needs, including vacations and college expenses. Unlike a typical checking account, a typical savings account pays interest on the money you’ve accumulated.
What Exactly Is a Checking Account?
A checking account that you open at a bank, credit union or other financial institution lets you safely set aside cash for everyday purposes like covering the rent, buying groceries or paying utility bills. With this type of account, you generally can use a debit card or checks for purchases and can accept deposits like paychecks and government benefits.
Vault’s Viewpoint on Savings Accounts vs. Checking Accounts
Checking and savings accounts are two of the most basic bank accounts you can open, but they serve different purposes:
- A checking account is geared primarily toward meeting immediate financial needs. Deleted:
- A savings account is designed mostly for reaching long-term financial goals.
Who Should Open a Checking Account for Their Financial Goals?
A checking account provides easy access to money you need for everyday spending, particularly since this type of account normally offers a debit card for purchases and ATM withdrawals. But if you’re looking to save money for the future and earn interest, a checking account probably isn’t the best option. Checking accounts usually don’t pay interest since they’re meant for covering short-term expenses and making short-term deposits.
Who Should Open a Savings Account Instead of a Checking Account?
A savings account is best for someone who’s eyeing long-term financial goals like covering the down payment on a new home or stockpiling cash in case of an emergency. As a result, it’s not the ideal option for everyday financial needs. Why? Because most savings accounts don’t issue debit cards or checks.
Checking Account vs. Savings Account: Key Differences
- Interest: Checking accounts typically don’t pay interest, while savings accounts do. And when they do pay interest, checking accounts normally offer lower interest rates. As of December 2023, the average national interest rate for an interest-bearing checking account was 0.07%, compared with 0.43% for a savings account.
- Debit card: Checking accounts normally provide debit cards for making ATM, in-store, and online transactions. On the other hand, savings accounts generally don’t come with debit cards.
- Checks: As the name suggests, checking accounts let you write checks. However, savings accounts normally don’t provide check-writing privileges.
- Access to cash: Checking accounts generally don’t limit the number of withdrawals you can make per month. Savings accounts, on the other hand, might impose a limit of six withdrawals per month.
Who Should Consider Alternative Accounts?
If you’re interested in a hybrid between a checking and savings account, consider a money market account.
A money market account often provides a higher interest rate than a traditional savings account while also allowing you to write checks. As of December 2023, the average national interest rate for a money market account stood at 0.64%, compared to 0.43% for a traditional savings account.
If you’re simply searching for a place to save money, look into a savings account known as a certificate of deposit (CD). In exchange for an interest rate that’s well above what you’d get with a traditional savings account, you agree to lock up your money for a certain period (like six months or two years). You might face a financial penalty if you pull money out of a CD before that period ends.
Another option: high-yield savings accounts and high-yield checking accounts. High yield-checking accounts, in particular, are harder to come by, but either may offer APYs north of 5%.
What Are Some Other Factors To Consider?
When you’re comparing checking and savings accounts, don’t overlook the following four factors.
ATMs
When you’re considering a checking or savings account, be sure to look at how and where you can withdraw money from an ATM. While a checking account generally comes with a debit card that can be used at an ATM, a savings account normally doesn’t offer a debit card but might provide an ATM card. Neither card may do you much good if your financial institution has limited access to an ATM network.
Further, keep in mind that many online banks don’t operate their own ATMs. However, they might partner with ATM networks.
Fees
Regardless of whether you’re opening a savings account or checking account, study the fees. Does the account charge a bunch of fees? If so, you might want to hunt for an account that advertises low or no fees. Fees to look out for include:
- Account maintenance fees
- Minimum balance fees
- ATM fees
- Overdraft fees
- Foreign transaction fees
You tend to find low or no account fees at community banks, online banks and credit unions.
Deposit and Balance Requirements
In some cases, a checking or savings account may require you to make a minimum deposit or maintain a minimum balance. A minimum deposit requirement might be $25 to $100, for instance, while a minimum balance requirement might be as high as $500.
To get the most out of your checking or savings account, find a financial institution that doesn’t require a minimum deposit or minimum balance. In many cases, an online bank will be your best bet for avoiding these requirements.
Customer Service
Let’s say a checking account or savings account supplies all the things you’re seeking, except the financial institution doesn’t offer the best customer service. Before opening an account, check with friends, relatives and colleagues and read online reviews to get a sense of how the financial institution will treat you as a customer.
Among the financial institutions that earn high marks for customer satisfaction are:
- Ally Bank
- American Express
- Capital One
- Charles Schwab Bank
- Chase Bank
- Discover Bank
- Marcus by Goldman Sachs
- TD Bank
Frequently Asked Questions
Is a Savings Account Safe?
Savings accounts are one of the safest places to keep money. Up to a certain dollar amount, savings deposits at banks are insured by the Federal Deposit Insurance Corporation (FDIC), and savings deposits at credit unions are insured by the National Credit Union Administration (NCUA).
Can You Withdraw Money From a Savings Account?
Yes, you can withdraw money from a savings account. However, your financial institution may limit the number of withdrawals you can make per month.
Is a Debit Card a Checking Account?
A debit card provides access to money in your checking account, but a debit card itself is not a checking account.
Do Checking Accounts Pay Interest?
Some checking accounts, such as rewards checking accounts, pay interest. However, traditional checking accounts don’t let you accumulate interest.
Editorial Disclosure: We may receive a commission from affiliate partner links included on our site. However, this does not impact our staffs’ opinions or assessments.
