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Checking vs Savings Accounts

Checking vs savings accounts

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Jennifer G Gregory
Updated March 7, 2023
4 Min Read

Many people just automatically open a checking or savings account for their banking needs without understanding the differences between the accounts. Because they serve different purposes and have different terms for rates, fees and limits, it's essential to understand the purpose of each type of account.

What is a checking account?

A checking account is one type of account that banks and credit unions offer where they store your money for you. This type of account is best used for everyday purposes like buying groceries or paying your bills. With a checking account, you typically have unlimited transactions and can link a debit card to your account.

While most checking accounts do not pay interest, those that do typically pay very low rates. However, you are required to pay a monthly service fee that varies, often up to $15. You're also required to maintain a minimum balance that varies depending on the bank or you will be charged an additional fee. Some online only banking apps like Chime® that offer checking services do not require a minimum deposit, but they also don't have physical branches if you are the kind of person who likes to pop into a bank to do your banking. Checking accounts are insured by the government under the Federal Deposit Insurance Corporation (FDIC), which provides up to $250,000 of coverage in case the bank fails.

You can withdraw cash from your checking account using a debit or an ATM card. However, if you withdraw from an ATM that isn't affiliated with your bank or credit union, you will be charged a fee. You also have to be careful with overdraft fees when you charge more to your account than you have in it. The bank covers the overdrawn amount as part of the overdraft protection service. However, when you do this you incur an additional fee, normally up to $35.

What is a savings account?

Savings accounts are best used for saving for a rainy-day fund or a short-term goal, such as buying a car or a new computer. This type of account provides interest that varies from bank to bank, but the average APY (annual percentage yield) is .06%. You can often find an account with a higher APY; online banks generally have the highest APYs. When considering which bank to start your savings account in, you want to try to make sure that the APY will keep up with the inflation rate so that the money you put into the savings account will not lose value. Like checking accounts, savings accounts are insured by the FDIC for up to $250,000 per account in case the bank fails.

The downside of using a savings account is that it's more challenging to move money in and out of the account. There is a limit to the number of withdrawals and transfers you can make without being charged a fee, which varies from bank to bank. However, you cannot make more than six withdrawals or transfers during a banking period under Federal Reserve Board Regulation D. With a savings account, you can be charged overdraft fees for overdrawing your account. The fine varies, but most major banks charge $35.

Differences between checking and savings accounts

While they are very similar in a lot of aspects, there are quite a lot of differences, and the biggest difference between a checking and savings account is the accessibility of the money. With a checking account, you can make frequent transactions and move money in and out freely, while with a savings account you can make only limited transactions before you get charged fees or the law stops you. A checking account gives you remote access to your cash through a debit card or checks, and you can spend the money directly from your account instead of having to withdraw it from a savings account at an ATM or bank.

On the other hand, a savings account gives you interest, while for the most part a checking account gives you no interest on your money, and the few that do provide interest give you significantly less than a savings account generally does.

Is it better to have a checking or savings account?

Both checking and savings accounts have different features and uses, so it depends on your goal. If you want to save money, a savings account is better, but if you want to have money on hand to spend, a checking account is better. Many people have both types and decide which account to use based on their needs. This gives you easy access to a portion of your money, while the rest is sitting in a savings account for a rainy day fund or a bigger purchase, gaining interest and maximizing the money gained. To reduce fees, you want to make sure you don't transfer money between the two accounts more often than allowed.


Can you lose money on a savings account?

Yes, there are a few ways to lose money on a savings account. One way is if you have more than $250,000 in your savings account and the bank fails, as the FDIC covers only $250,000. The second way is by racking up various fees like overdraft fees and ATM fees; you can avoid these with careful management. In a third way, you don't necessarily lose money, but you lose the value of the money if your APY is less than the inflation rate,  

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

Most debit cards are linked to checking accounts because checking accounts allow unlimited transactions. Some banks do offer debit cards that are linked to savings accounts; however, these allow only limited transactions before you incur a fine or even have your account shut down.

Is a savings account safer than a checking account?

Both checking and savings accounts are protected by the FDIC; however, debit cards are primarily linked to checking accounts, which are more vulnerable to theft. This makes savings accounts safer than checking accounts.

Chime is a financial technology company, not a bank. Banking services provided by The Bancorp Bank, N.A. or Stride Bank, N.A., Members FDIC.