The Difference Between Checking and Savings Accounts

While checking accounts are like wallets for everyday spending, savings accounts work as piggy banks for long-term goals or emergency funds. If you're trying to figure out which account you need, consider opening both: the advantages of one type make up for the drawbacks of the other. Most banks have policies that allow you to keep a savings account for free as long as you also have a checking account, so having another account won't necessarily add to your costs.

Checking AccountsSavings Accounts
PurposeFrequent spending, direct depositsGrowing savings, earning interest
Withdrawal LimitsUnlimited debit card and ATM accessMonthly limit of six withdrawals
Interest RatesUsually don't earn interestAverage of 0.06% APY

Checking Accounts Cost More in Fees vs. Savings Accounts

Compared to savings accounts, checking accounts come with numerous bank fees. This is because people use checking accounts on a daily basis, incurring higher operating costs that banks pass on to customers. This also gives banks the opportunity to increase revenue by charging for individual services. The most common fees include ATM fees, overdraft fees and the monthly maintenance fee. However, you can also expect to pay your bank for less common services, such as cashier's checks and wire transfers.

Common Checking FeesCommon Savings Fees
Monthly Maintenance Fee$12Monthly Maintenance Fee$0
Out-of-network ATM Fee$2.50Excessive Withdrawal Fee$10
Overdraft/NSF Fee$35Inactive Account Fee$5
Deposited Item Returned Fee$12Deposited Item Returned Fee$12

You can avoid most of the above fees with some simple habits. Most banks let you skip the monthly maintenance fee if you keep a certain amount in your account, or if the account receives enough in direct deposits each month. ATM fees only apply when you use an ATM that isn't part of your bank's network, so you should only use machines owned by your bank. Finally, banks charge overdraft and nonsufficient funds (NSF) fees each time you spend more than you have in your account. Overdraft fees can knock your balance even further below zero, so it's especially important to avoid them by keeping a careful eye on your balance.

Unfortunately, the deposited item returned fee is largely out of your control: it's a fee you pay whenever a check you deposit is rejected, or "bounces", because the payer doesn't have enough to cover the transaction. It's up to the person sending you money to ensure that they can pay for the full amount before you cash their check.

If all these fees make traditional checking accounts seem like more trouble than they're worth, you may want to open an online checking account. Banks that operate completely through websites and mobile apps do away with many of the standard bank fees you would find at a traditional bank. However, most online banks don't have physical branch locations, so they aren't an ideal option if you prefer banking in person.

Savings Accounts Allow Fewer Withdrawals Than Checking Accounts

According to the Federal Reserve Board's Regulation D, banks can only allow up to six "convenient" withdrawals from a savings or money market account each month. This restriction applies to most types of transactions, but you can make as many withdrawals as you like if you use an ATM or visit the bank in person.

Monthly Limit of Six On…No Limit On…
  • Debit card purchase
  • Overdraft transfer
  • Automatic bill pay
  • Online transfer
  • ATM withdrawals
  • In-person transfers
  • Transactions by mail

The monthly six-transaction rule doesn't allow six withdrawals of each kind listed in the first column. The limit imposes an overall maximum of six transactions, in any combination. This makes savings accounts less suitable for frequent expenses than a checking account. In theory, you could get an unlimited number withdrawals on a savings account through an ATM, but many savings accounts don't actually come with an ATM card. By contrast, checking accounts always include debit cards that you can use to withdraw cash at an ATM or spend money directly, like a credit card.

Both Checking and Savings Accounts Can Earn Interest

In the past, savings accounts always earned more interest than checking accounts. These days, however, there's a greater difference in rates between online banks and traditional banks than there is between checking and savings. The historically low interest rates of the past few years have led brick-and-mortar banks to lower their deposit interest rates, while the growth of financial technology has drastically increased rates for online checking and online savings accounts.

Account TypeAverage National Rate
Interest Checking0.04%
Savings0.06%
Money Market0.08%

If you look at the national rate averages published each week by the FDIC, interest checking accounts have averaged 0.04% APY while savings accounts average at 0.06%. These low rates have remained the same since 2013, and although the Federal Reserve signaled an intention to raise rates in early 2017, those changes won't immediately affect deposit interest rates.

Meanwhile, it's becoming easier to find competitive interest rates online. If you're willing to give up in-person services at a local bank, online-only banks offer rates as high as 1.25% APY on checking accounts as well as savings accounts. Whether you want checking, savings or both, maximizing your interest rate starts with looking at online options. You could also mix and match: since you'll need quick and frequent access to your checking account, you might get one at a nearby brick-and-mortar bank, then link that to a high-yield online savings account.

Checking vs. Savings: Why You Might Want Both

There's a good reason that many bank customers have both a checking and a savings account. Each type of account tends to make up for the limitations or disadvantages of the other, and since they play different roles in your financial life, it's not a waste of money to open both. In fact, banks will usually encourage their customers to do this by offering free savings accounts to anyone who already has a checking account.

Having these accounts at the same bank also lets you coordinate the movement of your money more efficiently. For instance, a savings account can be used as a sort of backstop to your checking whenever you run into an overdraft situation. If you opt into overdraft protection, the bank will automatically transfer money from your savings balance to keep your checking account from going into the red. While you'll usually pay a fee for each protective transfer, it's still less than what you'd otherwise pay for a regular overdraft.

Saving money also becomes a much easier process. If you set up an automatic monthly transfer from your checking account into savings, you'll accumulate a reserve fund without actively thinking about it each time. A few banks have special options to help customers save as well, like rounding up to the nearest dollar every time you use your debit card and sending those extra cents into your savings balance from checking.

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