Checking and Savings Accounts: What’s the Difference?

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Two of the most common types of bank accounts are the checking account and the savings account. In short, the checking account is used for everyday transactions, such as paying your bills. On the other hand, savings accounts are for putting money aside, such as used for an emergency fund.

In this article, we’ll go into more depth as what the difference is between a checking and a savings account.

Let’s jump right in.

What is a Checking Account Used For?

A checking account is best for daily transactions. You can deposit and withdraw money as needed.

Checking accounts are liquid accounts that provide faster access through unlimited withdrawals and deposits, though sometimes up to a cap. The limits that checking accounts have will depend on the bank or credit union. 

If you need to set up automated bill pay, a checking account is best for this.

You’ll also be able to write checks with a checking account.

Checking accounts are the great for short-term storage of your money, though you may not earn any interest on the money kept in the account. Some checking accounts do pay a low interest rate, but it’s more common for checking accounts to pay minimal to no interest.

What is a Savings Account Used For?

A savings account stores money that you won’t use right away. It doesn’t have many features for daily use, such as ATM withdrawals or checks.

They’re best for the money you intend to set towards a long-term goal. Some of the most common reasons people use savings accounts are for:

• Emergency funds
• Home down payment
• New car down payment

You can still access money within a savings account, but they have limits. Based on Federal regulations, you can only withdraw a fixed amount of times per month.

Some institutions charge a fee if you go over the limit. Here are some of the actions that are a part of the transaction limit:

• Debit card transactions
• Checks and overdraft transfers
• Transfers made through a mobile device or computer
• Automated clearing house (ACH) transfers
• Electronic funds transfers

Differences Between Checking Accounts and Savings Accounts

One of the key differences between the two is the withdrawal limit. Since checking accounts are made for daily transactions, you can use them unlimited times per month or up until the limit the bank has set.

Most savings accounts only have a limit of six before you get charged extra for each transaction. Money is easier to access in checking accounts, and some features may not be accessible to savings accounts at all.

For example, some banks don’t allow debit withdrawal or check processing with savings accounts. There might also be a restriction to registering it on a digital payment platform like Apple or Google.

However, if you want to store money long-term, you want it to compound over time.

That way, your money is working for you in storage.

Checking accounts are generally not ideal for growing your money because of their very low-interest rates. Money will grow slowly in checking accounts and some checking accounts have no interest accrual.

Savings accounts tend to have higher interest rates. Online banks usually have high-yield online savings accounts which tend to provide the highest rates.

Should I Use a Savings Account for My Emergency Fund?

A savings account is one of the best places to put an emergency fund. When you choose one with a high APY, your money will grow faster, though this isn’t the only factor to look at when choosing a bank for your savings account.

It also helps to find a bank where there are little to no minimum balance requirements so that you don't have to pay a maintenance fee.

Some banks also offer other benefits from choosing them. It can depend on the bank, but you’ll see things such as:

• Limited time higher interest rate offers
• Extra deposit on the account
• Easy access to the account with any added charges

Do Savings Accounts and Checking Accounts Have Minimum Balances?

The minimum balance on both checking and savings accounts will depend on the bank.

You’ll find that their terms vary, and some will even offer you zero minimum to entice you to open an account with them. If you’re concerned about minimum balances, then read over the terms of differing banks and choose the one that fits your situation best.

When you withdraw below the minimum and stay at that level for an extended period, you may incur a monthly maintenance fee.

Again, these terms can be flexible, and banks have different approaches to these rulings.

It’s best to ask about these from the bank before settling on opening an account. That way, you won’t encounter any unexpected fees..

Are Savings Accounts and Checking Accounts FDIC Insured?

The FDIC is an insurance company specializing in banks. In case an issue occurs, they will provide coverage in case the bank goes under. Nearly all banks carry FDIC for their insurance, and it makes sense to confirm with the bank before you open an account.

The FDIC covers checking and savings accounts, apart from other bank products. The coverage is up to $250,000 per depositor per bank.

Will I Lose Money if My Bank Closes Down?

One of the worst-case scenarios for a bank client is when the financial institution they’re relying on shuts down.

Most banks have FDIC insurance that covers checking and savings accounts. This will cover you up to the legal limit if the bank closes.

Wrapping It Up

When deciding between savings and checking accounts, it’s best to choose based on your needs. You may want to have multiple checking and savings accounts as well, as each account can have a specific purpose.