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When it comes to managing your finances, one of the most important decisions you'll make is choosing the right type of bank account. Two of the most common types of accounts are savings and checking accounts.
This article will explore the key differences between savings and checking accounts, including the features, benefits, and limitations of each, so you can make an informed decision about which type of account is right for you.
Checking Account: Manage Your Money
When it comes to an understanding your bank accounts, the checking account is the simplest one. This is where you carry out normal transactions with your checks, debit cards, online account or just walking into a branch. You get to pay bills, make deposits, make payments, and transfer money super easily with these accounts:
- ATM – An automatic teller machine is a super-easy way to get to the money in your checking account. As long as you use in-network machines you can get it without fees too, which means it’s also free access from wherever you are.
- Debit Card – This is another free method to access your money and use it without ever having to touch the cash itself. When you make a payment with a debit card you swipe it like a credit card, but the money comes out instantly like if you’d paid cash or with a check.
- Check – Speaking of checks, they’re not as common for most people, but they’re actually quite simple. You have to write out a check with how much it’s for and who it’s going to and these have to be ordered directly from your bank.
- Bill Pay – Paying your bills online is free through most financial institutions and you can usually set it up so it’s fully automatic too. That means it will also be much more convenient for you.
- Online Banking – If you don’t want to walk into a bank branch you can set up online systems that will take care of everything. You can log on a computer and you’ll have no problem doing anything you want from making payments to depositing checks and even transferring money between accounts.
Savings Account: Grow Your Money
When it comes to savings accounts, it's designed to keep your money stored for later. That means you're going to make interest, but you're probably going to have some limits on what you can pull out and when. Savings accounts come with FDIC insurance and those interest rates.
Some limits are imposed by the federal government related to just how many withdrawals you can make over the telephone or electronically withdrawal. You also want to look at different types of fees that are charged, including low-balance charges.
Checking Vs. Savings Account: Key Differences
Savings accounts are designed for long-term goals, such as saving for retirement or a down payment on a house, while checking accounts are intended for everyday expenses.
Checking Account | Savings Account | |
|---|---|---|
Purpose | Day To Day Activties, Spending, Direct Deposits | Growing Savings, Earning Interest |
Minimum Balance | $0 – $50 | $0 – $50 |
Interest | 0-1% APY | 3-4% APY |
Withdrawal Restrictions | Unlimited (Daily Limit) | 3-6 per month
|
Fees | Monthly Maintenance Fee, ATM Withdrawal, Other Fees | Low Monthly Maintenance Fee |
Protection | Up to $250,000 per account holder | Up to $250,000 per account holder |
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Savings Interest Is Much Higher
If you get a checking account, you're generally not going to have any interest building up. That means your money will just sit there and do absolutely nothing for you. That's not the way you want to keep your money, right?
With a savings account, you're going to be building up your money. Plus, you can look around for the best rates possible and get something a little better at least.
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Checking Accounts Are Much More Versatile
Checking accounts are generally considered to be more versatile than savings accounts because they offer a wider range of features and benefits.
Checking accounts typically offer more ways to access your money, such as through debit cards, online banking, and mobile banking. Also, checking accounts often come with built-in bill pay services that allow you to easily pay bills online, saving time and money compared to mailing checks.
Lastly, checking accounts often come with access to a network of ATMs, which can make it easy to withdraw cash when you need it.
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Checking Accounts Have Higher Fees
Checking accounts are more and more frequently charging fees for monthly use as well as many other types of fees.
That means you will pay a few dollars or more just to have that account. In some cases, however, there are ways to get this fee waived if you meet certain requirements. You want to watch for those and how you can meet them if you use a checking account.
You generally don't get the fees when it comes to savings accounts. That's because banks are getting more interest than they're passing on to you. So they take that money out of the fees they normally charge you. It means you're going to save money this way.
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Unlike Checking Account, Withdrawals From Savings Are Limited
The Federal Reserve Board's Regulation D requires that banks allow only 6 withdrawals from any account that's considered money market or savings. If you use an ATM or an in-person request you get to make more, but you'll want to keep track of how you do your withdrawals otherwise.
With a checking account, you're not going to have a limit to how many times you want to withdraw money. On the other hand, you are going to have limits on how much money you withdraw.
When you use your card, you can only charge up to $1,000 a day over all your transactions (though this may vary a bit with your card) or withdraw up to a set amount from an ATM every 24 hours.
You Shouldn't Choose Between Them: Use Both
There are several reasons why it can be beneficial to have both a savings and a checking account:
Separation of funds: Having separate accounts for savings and checking can help you keep your money organized and make it easier to budget and track your spending.
Different interest rates: Savings accounts generally offer higher interest rates than checking accounts, which can help your money grow faster.
Safety and security: Keeping your money in separate accounts can reduce the risk of overspending and help ensure that you have enough money set aside for emergencies.
Different account features: Checking accounts typically offer features such as debit cards, online banking, and mobile banking, which can be useful for day-to-day transactions, while savings accounts may offer features such as automatic transfers and access to investment options.
Meeting different financial goals: Having separate accounts for savings and checking can help you achieve different financial goals, such as saving for a down payment on a house, or paying off credit card debt.
Legal requirements: Some banks and credit unions may require you to have a checking account to open a savings account or to access other financial products and services.
Having both a savings and checking account can help you manage your money more effectively by providing you with the tools you need to save for the future, while also allowing you to easily access your money for everyday expenses.
What is the Best Checking Account?
There are a few simple ways that you can identify the best accounts.
- Choose the right type of account – There are many types of checking accounts. You need first to determine which type is best for you.
- Online or in person? Next, consider whether you would prefer to open a checking account online.
- Accessibility – It is also important to consider accessibility. You must use the ATM network of your bank to withdraw money from ATMs. Many banks offer ATM withdrawals at no cost. You should ensure that ATMs and branches are available in your area by checking with your bank.
After narrowing down your options, it is time to consider the fees. Most banks charge a monthly fee that is deducted from your account each month. Some banks will waive these fees if you have a minimum account balance. Online banks don't usually charge any service fees.
There are many options for checking accounts offered by banks. This can make it difficult to choose the right account. These are some great options:
Bank/institution | Monthly Fee | Bank Type |
|---|---|---|
Bank of America Advantage Plus Checking | $12
can be waived by maintaining an account balance of $1,500, qualifying deposit of $250+ per month or enrol in Preferred Rewards
| Traditional |
Chase Total Checking® | $12
Can be waived if you maintain a $1,500 minimum daily balance, making direct deposits or Associated SnapDeposits of $500 or more per statement cycle, or holding $5,000 in combined deposit accounts with the same statement cycle date or having a Health Savings Account or investment account
| Traditional |
Citi Checking Account | $12
Can be waived if you make one qualifying direct deposit and one qualifying bill payment per statement period, maintain a combined balance of $1,500 per month across your eligible accounts or if you’re aged 62
| Traditional |
PNC Standard Checking | $7 – $25 per month
can be waived if you maintain $500+/$2,000/$5,000 direct deposit per month, $500+/$2,000/$5,000 monthly balance in savings or age 62+/$10,000 in all PNC consumer deposit accounts/$25,000 in all PNC consumer deposit accounts/
| Traditional |
U.S. Bank Checking | $6.95
Can be waived by maintaining an average account balance of $1,500, have $1,000+ in direct deposits per month or be aged 65+
| Traditional |
Wells Fargo Everyday Checking | $10
Related to Wells Fargo Everyday Checking. The fee can be waived if you maintain a minimum daily balance of $500 or receive at least $500 in qualifying direct deposits per month. The fee is also waived if you’re 17 to 24 and have a linked Wells Fargo Campus Debit Card or Campus ATM card linked to the checking account
| Traditional |
Capital One 360 Checking | $0 | Online Only |
Amex Rewards Checking | $0 | Online Only |
SoFi Bank | $0 | Online Only |
What Is The Best Savings Account?
The best savings account for you will depend on your individual needs and financial goals. Here are a few factors to consider when looking for the best savings account:
Interest rate: The interest rate is one of the most important factors to consider when looking for a savings account. A higher interest rate means more money in your account over time, so it's important to shop around and compare rates offered by different banks and credit unions.
Fees: Many savings accounts come with fees, such as monthly maintenance fees or withdrawal fees. Be sure to read the fine print and compare the fees charged by different banks to find the one with the lowest fees.
Accessibility: Consider how easy it is to access your money, such as through online banking, mobile banking, and ATMs.
Minimum balance requirements: Some savings accounts may require you to maintain a certain minimum balance, which can be a problem if you have limited funds..
Ultimately, the best savings account is one that offers a competitive interest rate, low fees, and features that align with your financial goals and needs. It's important to compare the different options available and pick the one that best fits your needs.
Bank/Institution | Savings APY |
|---|---|
American Express | 3.80% |
Capital One | 3.80% |
Upgrade | 4.14% |
Marcus | 3.90% |
Discover Bank |
3.75%
|
Lending Club | 4.50% |
Quontic | 3.85% |
UFB Direct | Up to 4.01% |
Alliant Credit Union | 3.06% – 3.10% |
Ally Bank | 3.80% |
SoFi | up to 3.80% |
Checking & Savings: Should I Be Concerned About Inflation?
When you consider your long-term finances, inflation is a concern. Inflation is a concern when you consider your long-term finances. If inflation is 2%, and your savings account pays 1.5% over the long-term, you will lose some of the purchasing power of your money.
If you plan to leave your money in an account, you should seriously think about how the interest rate compares with inflation.
A checking account is only for day-to-day transactions and short-term deposits. A majority of checking accounts do not pay interest so it is not a good account for large amounts. A checking account should have enough funds to cover your monthly expenses.
You should consider the benefits of a minimum monthly balance in your checking account to avoid inflation and tying up your money. A minimum balance on a checking account is not only necessary, but it also provides great benefits that more than make up for the lower inflation rate.
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