Checking vs. Savings Accounts

When it comes to managing money, you may be wondering whether a checking account or a savings account is better equipped to meet your needs. According to financial research, 5.4% of American households are unbanked, meaning no one in these families has a bank account. That's about 7.1 million households across the country. Both types of bank accounts can help meet different needs for staying on top of your finances, though they don’t function in the same way.

What Is a Checking Account?

A checking account is an account held at a financial institution that allows you to make credit and debit transactions. These accounts can offer both a debit card and check-writing capabilities. Withdrawals can take the form of cash withdrawals made at a branch or an automated teller machine (ATM), as well as debit card purchases, checks, money orders, ACH transfers, and wire transfers. Similarly, deposits can be made by depositing cash, checks, or money orders at a branch or an ATM, as well as via mobile check deposit, automated clearing house (ACH) transfer, or wire transfer.

“If you need to use funds for daily transactions, a checking account is the best way to do that,” says John Bergquist, President at Lift Financial in South Jordan, Utah.

A checking account is useful if you need to:

• Pay bills electronically or via check
• Make purchases or ATM withdrawals using a linked debit card
• Transfer money to an account at a different bank electronically

Checking accounts may or may not be interest-bearing. If it is, the money you deposit earns interest as long as it stays in your account. These accounts can be offered by brick-and-mortar banks, online banks, credit unions, and other financial institutions.

What Is a Savings Account?

A savings account is a deposit account that’s designed for holding funds that aren’t earmarked for everyday use, such as paying bills or spending. For example, you might open a savings account to grow your emergency fund, set aside money for a vacation, build your down payment if you plan to buy a home, or save money for home improvements. Like checking accounts, you can find savings accounts offered at different financial institutions like traditional banks, online banks, and credit unions.

Between savings and checking accounts, you’re less likely to earn interest with the latter. Banks pay savers an annual percentage yield (APY) as an incentive for depositing and keeping money in their savings accounts. The APY savers can earn isn’t uniform, however. It can vary from bank to bank. On average the national savings rate was 0.46% as of February 2024.

“An online savings account is a much better option at almost 20 times higher a rate than the traditional checking account,” Bergquist says. “In fact, it’s even very similar to what you would earn when purchasing a 10-year Treasury bond.”

Online banks often have the capability to pass on higher interest rates to savers, owing to their lower overhead and operating costs. The rates can vary widely, but it’s not unthinkable to find high-yield online savings accounts from banks and credit unions earning an APY in the range of 1.90% to 2.25%.

Special Considerations

A key mark in favor of checking accounts is the fact that withdrawals are virtually unlimited. You could use your card 10 times a day to shop, make daily cash withdrawals, and pay your bills without being penalized by the bank. But that may not be the case with your savings account. This started with Regulation D, which was a rule imposed on banks by the Federal Reserve.

According to the rule:

• Share savings accounts, savings accounts, and money market accounts (MMAs) were limited to a maximum of six withdrawals per month. Your account provider could charge you excess withdrawal fees if you exceeded the maximum number of withdrawals per month.
• Transactions that counted toward the limit included ACH withdrawals, overdraft transfers from savings to checking, transfers made via online banking or by phone, debit card point-of-sale (POS) transactions, and transfers or withdrawals made via fax.
• Unlimited withdrawals from savings accounts were allowed when made in-person, via mailed request, or at an ATM.

Although Regulation D withdrawal restrictions were lifted in April 2020, some financial institutions may still charge their customers excess withdrawal fees if they're made from a savings account. It's always a good idea to ask your bank or credit union for the rules about your savings account so you're not surprised with fees that you weren't expecting.

Checking vs. Savings Accounts: Which Is Better?

When comparing checking and savings accounts, you may find that one is better suited than another to your needs, and in some cases, you may benefit most from using both. Here are some questions to consider when shopping around for a checking or savings account.

• What are the fees associated with the account? For example, is there a monthly maintenance fee?
• Is there a minimum balance requirement that needs to be met?
• Does a savings account come with an ATM card or a debit card?
• Are there daily limits on ATM withdrawals for checking accounts?
• Are there daily limits on deposits for a checking or savings account?
• Does the account earn interest, and, if so, what is the APY?

You should also check to see whether the bank offers any special perks for opening an account.

“Banks are highly competitive in a ridiculously low-interest-rate environment, and there are occasional incentives that could make a checking or savings account more attractive,” O’Donnell says. For example, you may be able to join a debit card rewards or discount program that could save you money, or you could take advantage of promotional deals for opening other accounts, such as a money market or certificate of deposit (CD).

Lastly, keep in mind the kind of access you need when it comes to banking. Whether you choose a checking or savings account, consider whether the bank offers the online and mobile banking tools you need to manage your money digitally, the number of ATM locations, and whether branch banking is available, if that’s something you occasionally use.