Checking vs. savings accounts

In a nutshell

Banks offer many different types of accounts, such as checking, savings, and certificates of deposit (CDs). Deciding between checking and savings accounts depends on what your goals are and what type of transactions you need to do.

• Checking accounts are also known as demand deposit accounts (DDAs) because you can take money out at any time without penalty. Checking accounts also generally don't pay much in interest, if they pay at all.
• Savings accounts are meant to hold money for a longer period of time, and some banks may change penalties for taking more than a specified number of withdrawals per month.
• Savings accounts pay more interest than checking accounts, though until recently they didn't pay much.
• Online banks that offer high-yield savings accounts have offered up to 5% annual yield for the last couple of years.

What is a checking account?

A checking account is a bank deposit account that allows the account holder to write checks. Checking accounts are also known as "demand deposit accounts" because they must provide payment upon demand (that is when a check is presented). Most banks allow unlimited deposits and withdrawals from personal checking accounts at no extra charge.

Checking accounts are used for daily purchases and deposits from a variety of sources. You can access your money by writing a check, making an in-person withdrawal, using the ATM, making a debit card purchase, approving an electronic transfer, creating an online bill payment, and more.

Deposits can be made in person, through the ATM, using your phone to scan a check, direct deposit from your employer or other sources. Your checking account can also be linked to third-party applications like PayPal and Venmo to send and receive money.

Most banks have several types of checking accounts to choose from. These options vary based on your expected balances, transaction types, and desired features. In most cases, the monthly service charges are waived based on your average balances or receiving direct deposits into your account.

What is a savings account?

A savings account is a bank deposit account that provides security for your money and earns interest on the balance. Many people use savings accounts as a place to keep their money for short and long-term goals. In most cases, their savings accounts are at the same bank as their checking account, but that isn't necessary. A savings account at your primary bank can serve as overdraft protection in case your checking account is overdrawn.

Savings accounts earn interest on the average daily balance. Most banks compound interest monthly. These accounts earn a modest amount of interest compared to money market accounts. By shopping around, consumers can often find higher interest rates with high-yield online savings accounts versus those offered at a traditional bank branch.

Federal Reserve Regulation D, which limits account holders to no more than six withdrawals or transfers per month out of a savings account, was suspended in Oct. 2022. However, many banks continue to enforce the rule. Keep in mind that withdrawals or transfers made in person or at the ATM do not count towards this limit.

Differences between checking and savings account

While both types of accounts are good places to keep your money, each account meets a specific purpose. In this table, we compare checking vs. savings accounts so that you can determine which account meets your needs the best.

Is it better to have a checking or savings account?

When opening a bank account, how do you choose between a checking vs. savings account? The "right" account depends on what you want the account to do with your money.

Checking accounts are basic bank accounts that everyone should have to send and receive money. They make it simple to pay bills, access cash, and receive payments from others. Checking accounts generally have a monthly fee, and they do not earn interest. However, many banks waive the monthly fee if you have a direct deposit or meet certain minimum balance requirements.

A savings account is a good place to earn interest on money that you don't need right away. Transaction limits, depending on the bank, may restrict how often you can access the account. This serves to make it less tempting to touch the money that you're saving towards a goal. You'll earn interest on your balances, but traditional banks offer paltry interest rates. Seek out a high-yield online savings account to find the best rates.

Keep in mind that when deciding between checking vs. savings accounts, it doesn't have to be an either-or situation. Many people choose to have both accounts based on their unique features and their money goals.

Open a savings account

Frequently asked questions (FAQs)

Can you lose money on a savings account?

Savings accounts are one of the safest places that you can keep your money. You'll receive FDIC insurance on your deposit of up to $250,000 in combined balances at every bank with which you have an account. Plus, there are ways to receive additional protection based on the way you title your accounts. FDIC insurance prevents you from losing money if the bank fails.

Is a debit card linked to a checking or savings account?

Debit cards are primarily linked to a checking account because they also enable purchases like a credit card. However, if you have both a checking and savings account linked to your debit card, you can use your ATM card to make deposits or withdrawals from your savings account. Generally, if you open a savings account, you'll receive an ATM card instead of a debit card.

Is a savings account safer than a checking account?

Both checking and savings accounts are safe places to keep your money. A checking account is a bit riskier than a savings account because they generally have more transactions each month. With more activity, it is easier to miss an unauthorized transaction or to have your account information compromised.