4 Key Differences Between Savings and Checking Accounts

Where do you keep your money? Unless you are storing cash in your mattress (not recommended), you probably have a checking account and a savings account. You need a personal checking account for access to cash when you need it, such as for paying bills or making purchases. Similarly, you also need a separate place to put money aside for the future—maybe for a vacation or to buy a new car.

As we can see, checking and savings accounts serve very different purposes. A checking account is ideal for everyday financial transactions, such as covering transactions and withdrawing cash from an ATM. A savings account is designed to hold funds where they can earn interest over time. Whereas checking accounts are for daily use, savings accounts are structured to have limited withdrawals. However, working together, checking and savings accounts can be valuable tools for managing your personal finances.

If you’re currently in high school or college, you may already have a student checking account, but eventually, you will want to open your own personal checking and savings accounts. To prepare, you should understand the differences between savings and checking accounts, how to use them, and what you should expect from your bank. Below, we offer some insights by comparing and contrasting the two account types.

Key Differences Between Savings and Checking Accounts

Four major differences between savings and checking accounts are:

1. General Purpose

Generally speaking, your checking account houses money for day-to-day needs, while a savings account stores money to use toward long-term goals. Because your checking account accepts incoming money, you might think of it as a staging area for your savings account. As you accumulate more money, you can move some of it into savings, where it will earn interest. Many banks encourage you to open a checking and savings account together and set up regular automatic transfers from checking to savings.

2. Earned Interest

Since checking accounts are designed to help you spend money, they often don’t earn interest; a checking account is just a repository for your cash until you are ready to use it.  On the other hand, the amount of interest a savings account earns will vary depending on the bank, though most savings accounts pay less than 0.1 percent. Money market accounts offer higher interest rates, allow you to write a limited number of checks per month, and may offer an alternative to a savings account. Ask your banker about the differences. 

3. Withdrawal Limits

Some savings accounts limit the number of withdrawals that can be made per month and have other penalties for certain account activities, so be sure to check for hidden fees. Checking accounts, however, typically allow an unlimited number of transactions. This is, of course, unless the existing balance can’t cover the payment amount.

4. Minimum Balance

Moreover, many accounts require you to maintain a minimum balance of $200 or more and charge monthly service fees if the balance drops below the minimum. This condition can apply to both checking and savings accounts, so be sure to ask about minimum balance requirements before signing up.

More About Savings and Checking Accounts

Digital banking, online payment services, and ATM cards make your funds easy to manage and access when you need them. Checking accounts are structured to help you seamlessly manage cash flow, meaning income (i.e., your paycheck) is put into your checking account. Once it’s in your account, you can use checks, your ATM card, or online transaction services to move or use that money for whatever you may need.

Manual, Electronic, and Automated Transfers

Most checking accounts give you flexibility by letting you write physical checks or make electronic transactions. For example, you can manually deposit your paycheck or arrange for it to be deposited automatically. You can pay bills using the bank’s online bill-pay service, or you can write checks and pay bills through the mail. 

To help you build your savings, consider using an automatic deposit. Many banks require you to automatically transfer a certain amount from checking each month to gradually build your savings. 

With e-commerce on the rise, more service companies and businesses are eliminating checks and accepting electronic payments, either online directly through a payment portal or using third-party services such as PayPal. However, you still need a checking account to store the money you use for e-commerce transactions. Most financial institutions are making digital transactions more accessible by offering their own mobile banking apps. 

Considerations to Make When Opening a Savings or Checking Account

FSCB offers different types of checking accounts with different features. Many are free or can have fees waived, and others have a low minimum deposit requirement. FSCB also has savings account options for varying lifestyle needs, including a health savings account that has tax advantages. We also offer electronic banking, money management, and other services depending on your needs.

When shopping for a bank to open any type of account at, try asking the following questions to better understand the account terms and conditions:

• Is there a minimum balance requirement?
• What fees are associated with my bank account? How can I get those fees waived?
• What is the interest rate on my earnings? Do your checking accounts pay interest on deposits?
• Can I use my ATM card like a credit card? Are there fees? What about cash withdrawals—do I have to use a bank ATM to avoid fees?
• What about online banking? Do you have online bill pay and remote banking services?

You must comply with certain terms when maintaining a checking or savings account, and these limitations will vary by bank. For one, some banks maintain paperless accounts and require all transactions, including monthly statements, to be performed electronically to avoid fees.

Making Savings and Checking Work Together

Though there are differences between savings and checking accounts, they give you a better return if you use them together. Automatic deposits, for example, help you build savings in case of an emergency. You can also use your savings account to save for a house, wedding, or other significant life event. Many banks also tie checking and savings accounts together, so if you overdraft your checking account, the difference is taken from your savings, and they won’t charge you an overdraft fee. 

Of course, checking and savings are only two account types that most banks offer. There are other tools, such as certificates of deposit, which offer higher interest rates in exchange for committing to save your money for an extended duration. Many banks also offer retirement planning, and your financial advisor can help you with individual retirement accounts or other long-term savings strategies. 

Your bank offers a wide range of checking and savings alternatives, each with its own terms and benefits. Contact your local financial advisor to determine what types of accounts are best for your spending and saving habits.