Checking account vs. savings accounts: Key differences and why it’s best to have both

Typically, you won’t need to choose between opening a checking and savings account because you’ll want both in your financial portfolio. Checking accounts have a lower APY, but are more flexible for everyday spending. Savings accounts offer less fluidity, but are a good option for long-term savings goals like growing an emergency fund or saving for a house down payment.

We’ll break down what you should know about these account types and how they can work together.

Checking vs. savings accounts

There are a few key distinctions between these types of bank accounts. At a glance, here are some of the main points where they differ.

What is a checking account? 

A checking account is a type of deposit account that you can put money into and then withdraw when you need to make purchases. 

Typically, with a checking account, you can deposit and withdraw money as frequently as you choose, accessing cash via ACH transfer, ATM withdrawals, a debit card linked to the account, or written checks. Many checking accounts don’t earn interest or earn at a negligible rate. In some cases, there are high-interest checking accounts, but those accounts still don’t tend to meet the same APY standards as the best savings accounts. 

There are numerous free checking account options available in the marketplace, and many banks may also offer a welcome bonus for new customers as long as you meet specific criteria within a specified period of time.

For the most part, if you’re above the age of 18, you can open a checking account at a bank or credit union. Minors seeking a checking account will typically need to open the account jointly with an adult.

Pros and cons of checking accounts 

For everyday financial actions such as paying bills or using a debit card to make typical purchases, a checking account is what you need. But, you should be aware of rules and regulations surrounding overdraft fees, minimum balance requirements, monthly maintenance fees, and ATM fees, which could end up costing you money if you fall on the wrong side of them. Here are some pros and cons to keep in mind when using a checking account:

Pros

• Debit cards. Debit cards are linked to a checking account where money is immediately withdrawn from your account when you make a purchase.
• Direct deposit. If your employer offers direct deposit, your paychecks can be electronically transferred to your checking account, typically allowing you to access the cash more or less immediately.
• Digital wallet compatibility. If you have a debit card linked with your checking account, it’s generally pretty easy to add a digital card to the wallet on your mobile device.
• Automated payments. Since checking accounts usually offer unlimited withdrawals, you can easily set up autopay on any bills so your money is automatically withdrawn from your checking account and you don’t risk missing a payment.

Cons

• Overdraft fees. If you don’t keep a careful eye on your balance, you might overspend and end up being charged overdraft fees, which are assessed when you spend more money than you have in your account.
• Minimum balance requirements. You may need to maintain a minimum balance on your checking account—or risk paying fees such as a monthly maintenance fee if your balance falls below the required amount. 
• Monthly maintenance fees. Following on the above point, some banks may charge service fees for keeping your deposits, but these fees may be waived if you meet certain requirements.
• Too easy to spend your savings. With checking accounts, your money is easily accessible but this could be an issue if it tempts you to overspend. That’s one reason it’s wise to have a separate savings account for funds beyond what you need for your day-to-day expenses.

What is a savings account? 

Similar to a checking account, savings accounts are a standard type of deposit account where you can store your money. But unlike a checking account, it may offer a significantly higher APY (annual percentage yield) because it’s not meant for everyday use. A higher APY means you’ll earn more interest on your savings.

Savings accounts are typically used for money you want to sock away for a longer period of time. Think emergency funds with enough money to cover three to six months worth of expenses or funds allocated for specific goals, like a down payment on a house or a dream vacation.

There are several different kinds of savings accounts that can be used in different ways. Common ones include high-yield savings accounts, which offer higher APYs than traditional savings accounts and 529 accounts used to specifically save for educational purposes like college. 

Also keep in mind that other factors, like whether the account is with a brick-and-mortar institution or online bank, may have an impact on the different features offered to customers.

In many cases, you’ll open both a checking and savings account with the same bank, either for the sake of convenience or because the two are bundled together.

“Ideally, it makes life a lot easier when you can work with one institution that can provide all of those [banking] solutions,” says Colin Walsh, founder and CEO (at the time of interview) of Varo Bank.

Bear in mind that ease of making transfers can be a pro or a con depending on your needs. 

If you want virtually immediate access to your savings, having accounts at the same institution is the way to get that. However, if you want a brief delay to help prevent the urge to tap your savings, maintaining a savings account at a separate bank or credit union than the one where you keep your checking is probably a smart move. 

Pros and cons of savings accounts 

If you’re in a position where you don’t need as much flexibility and want to earn more interest on your money, finding a savings account that fits your needs is the smart play. 

Prior to 2020, consumers were restricted to making six withdrawals per month from their savings accounts. That regulation has been waived, but many banks may still have limits on how many withdrawals you can make—so read the fine print on your account. Also, keep an eye out for items such as minimum balance or deposit requirements and monthly maintenance fees..

Pros

• Higher APYs. Typically, savings accounts offer notably higher APYs than checking accounts. That said, you’ll often find the best APYs from high-yield savings accounts at online institutions, as APYs on savings accounts at brick-and-mortar banks can still be quite low. 
• May reduce the ease of spending. Unlike checking accounts, savings accounts don’t offer linked debit cards, unlimited withdrawals, or checks so it’s not as easy to access cash on a whim. This can be a good thing if you’re trying to avoid temptation and save toward specific goals.
• Overdraft protection. If you’re prone to overspending money in your checking account, you can likely set up overdraft protection, allowing you to link other bank accounts (like your savings accounts) to cover transactions you can’t afford with your checking account balance.

Cons

• Withdrawal limits. Your bank or credit union could restrict you to six withdrawals per statement cycle.
• Not very accessible. A savings account, in most cases, isn’t great for money you need ASAP. 
• Time-consuming money transfers. Transferring money between accounts at the same bank typically occurs immediately, but if you have accounts at different banks, it could take a few days.
• Minimum deposit or balance requirements. Some banks may require that you deposit a minimum amount of money when you first open the account or that you maintain a certain balance (or pay fees).

The takeaway 

Having both checking and savings accounts is a financial necessity for most people in this day and age. Still, it’s important to understand the difference between the two accounts when it comes to how they’re used, potential fees, and the APY you could earn. 

The best way to use a checking account is to store money specifically designated for everyday use. Your checking account is often used for routine payments such as paying off credit card bills and making rent payments to avoid added processing fees. Compared to a savings account, you won’t receive as much interest, but you’ll be able to access it as frequently as you need. 

If you’re looking to set up an emergency fund or put money away for a longer period of time without touching it, a savings account is a much better choice. You can earn significantly more interest with the right savings account—but know you’ll likely be limited in the number of withdrawals you can make each month.

You may even opt to eventually have multiple savings accounts, each dedicated to saving for a specific purpose to make it easier to track your progress.

For an account that acts as a hybrid between a checking and savings account, you might consider a money market account, which may offer a better APY than you’d get with a checking account but more flexibility than the typical savings account. You may also decide to open a certificate of deposit (CD) for money you want to earn interest on and protect from market fluctuations.