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What’s the Difference Between a Checking And a Savings Account?

Man holding bank card while reviewing bills and checking statements
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Debating whether you should have a checking account or a savings account? We say get both! Even though they may seem similar in specific ways, they each have different advantages and limitations.

Do you wonder what happens to your money at the bank? When you deposit funds into either a checking or savings account, your bank promises to keep that money safe until you need it. In the meantime, they use it for other purposes, such as loans and investments.

But don’t worry, the Federal Deposit Insurance Corp. (FDIC) insures up to $250,000 of your money, per account, which in turn is guaranteed by the U.S. government. Credit unions offer the same security by the National Credit Union Association (NCUA). So keeping your money in the bank is the best place for it to be.

Let’s take a look at checking and savings account differ, as well as how to utilize each account to manage your money more effectively.

Everyday Spending

When it comes to day-to-day expenditures, you want things to work without any hiccups or hassles. Here’s how that works with the two different kinds of accounts.

Checking Account: This account should hold enough money for your regular bills and purchases. You can make debit card purchases, ATM withdrawals, set up automatic electronic payments, online bill pay, use paper checks, and do online transfers using services such as Zelle, PayPal, or Venmo. Some people use a credit card for their regular purchases—just make sure you have enough funds in your checking account to cover every purchase.

Savings Account: This is a terrible place to store money for everyday use. This is because of something called Regulation D.

The federal law limits you to six monthly withdrawals/transfers from a savings account before a fee is charged. This is to ensure that banks can maintain a certain amount of reserve at all times, as well as to encourage people to save money successfully. You can get around the Regulation D limitation by withdrawing cash from an ATM or in person, although some banks have their own rules for this.

The Bottom Line: Put money into your savings to grow and earn interest. Use your checking account to pay your rent and to buy your weekly groceries.

Monthly Maintenance Fees

Nobody likes fees, but for some accounts and some institutions, they’re a way of life. Here’s how fees typically shake out for checking and savings accounts.

Checking Account: Most banks charge a monthly maintenance fee. This is because banks can’t rely on money consistently staying in a checking account, and therefore they can’t make as big of a return on it. Also, keeping track of multiple daily transactions from a checking account requires more administrative hours for bank staff. Because of this, checking accounts usually come with a fee.

Most banks list several ways to avoid their monthly charges, such as maintaining a minimum balance, setting up a direct deposit from your employer, or making a certain amount of debit card purchases per month. Always check with your bank about these requirements and make sure to hit them every month.

Savings Account: Since banks earn money from your money just sitting there, they often don’t charge a fee to have a savings account. If they do, it’s usually not much, and there are ways to waive it, such as depositing a certain amount each month or maintaining a minimum balance.

The Bottom Line: Check with your bank about ways to avoid the monthly maintenance fee. They are usually easy to avoid and will save you in the long run.

Withdrawal Limitations

If you primarily use your debit card, withdrawal limitations may not even be on your radar, but if you’re withdrawing cash frequently, it’s something to be aware of.

Checking Account: One benefit here is that you can withdraw money regularly from an ATM or in-person, and there’s no limit to how much you can take out (although some banks may place a daily limit on an ATM-withdrawals to protect your money). Some checking accounts charge for using other bank’s ATMs, whereas some banks include nationwide ATM use at no extra charge.

Savings Account: Not only do banks limit you to six withdrawals per month, but there’s also often a limit to how much you can take out at one time.

The Bottom Line: Always make sure you keep a buffer in your checking account for emergencies or set up several savings accounts so you can withdraw a chunk from each if needed for something urgent.

Earning Interest

While the interest you earn off checking and savings accounts definitely won’t qualify them as a high-yield investment by any measure, you can still squeeze a little money out if you plan carefully.

Checking Account: Even though the majority of checking accounts don’t earn interest, some banks will offer a small amount. It’s never very high, but it can amount to something if you have a lot of monthly bills and therefore have a high balance in the account.

Savings Account: Let’s face it; when it comes to earning interest, savings accounts take the lead. You want to look for one that earns at least 1.50% APY. Setting up a monthly automatic deposit into your savings account is one way to ensure regular savings. You can also open different savings accounts for specific purposes, such as a down payment for a house, a Christmas fund, and a vacation fund.

Make sure to follow your bank’s guidelines for earning high-interest rates. This means following the strict rules about the number of withdrawals, transfers, and ATM transactions you’re allowed each month (remember, the federal limit is six, but each bank might have their own set of rules beyond that). Also ask about money market accounts, which may have a higher interest rate than a regular savings account.

If you have a chunk of money that you’re not planning to spend for at least several months, look into a certificate of deposit (CD). These often have stricter rules attached but offer more lucrative returns than regular savings accounts. And unlike investments, your earnings are 100% guaranteed.

The Bottom Line: Set aside enough for bills and a small buffer in your checking account. Move everything else over to a high-earning savings account, money market account, or a CD so your money can grow, grow, grow.

Using Different Banks

Most people choose the convenience of keeping all their accounts at one bank. This will make your life easier, especially if you go into the bank to make deposits and withdrawals (as opposed to doing everything online) Plus, some banks will waive your monthly maintenance fees if you link your checking and savings accounts.

However, you may find better interest rates and checking account fees when you go to separate banks. For example, one bank might offer a great interest rate for savings accounts, but their checking account options are less than par.

If you’re looking to maximize your earnings, consider researching all options for savings and checking accounts, even if they end up being at different banks. Your wallet will thank you.

Figuring out how to manage your money can take a bit of planning and effort. But maintaining separate checking and savings accounts is the way to go.

Finally, while we’ve been focused on the differences between the two accounts, here’s a final tip to make life easy. Be sure to set up a way to transfer money online between both accounts, unless you want to make it hard to access your savings account (this can make it easier to reach your savings goals).

Jill A. Chafin Jill A. Chafin
Jill A. Chafin is a freelance writer, aerialist, dancer, food enthusiast, outdoor adventurer, and mama, based in Chapel Hill, North Carolina. Read Full Bio »
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