What’s the difference between a checking and a savings account?

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Many people have a checking and savings account, but how are they different? Both serve important purposes when it comes to managing your money.

Generally, checking accounts are for everyday transactions, while savings accounts are for setting aside money for specific goals. In most cases, you should have both accounts, each serving its purpose.

Here are some key differences between checking and savings accounts and tips for finding the right bank account.

Differences between savings accounts and checking accounts at a glance

What is a checking account, and how does it work?

Think of a checking account as your financial home base. These accounts act as your primary bank account for paying bills, making purchases, and depositing your paycheck.

Checking accounts offer easy access to your money but little or no interest. Here are the key benefits of a checking account:

• Convenience: Checking accounts allow you to pay bills online, write checks, use a debit card for purchases, withdraw cash from ATMs, and transfer money.
• Accessibility: It’s easy to access the cash in your checking account. You’ll typically get a debit card that you can use to make purchases, or you can withdraw money from an ATM. You can also order a checkbook to write checks for larger transactions.
• No withdrawal limits: Unlike a savings account, you can withdraw money from checking at any time with no limitations. This flexibility makes it a better account for everyday spending.
• FDIC Protection: Most checking accounts are FDIC-insured, which means your money is protected up to $250,000 per person per account.

The downsides? Checking accounts tend to pay extremely low interest, or no interest at all. Some charge fees if you don't meet minimum balance requirements or complete certain activities per month.

Overall, if you’re looking for a place to keep your money safe but accessible for everyday use, a checking account is the right choice.

Types of checking accounts

There are a few different types of checking accounts out there, depending on your financial situation:

What is a savings account, and how does it work?

While checking accounts focus on daily financial needs, savings accounts offer a way to build your savings over time.

Because of this, most savings accounts won’t have some of the accessibility features that checking accounts have. For example, you usually won’t get a debit card or checkbook with a savings account. Some savings accounts may even limit the number of withdrawals you can make each month.

But in exchange, savings accounts offer interest. These rates are often much higher than checking accounts, helping your balance grow. This makes savings accounts a good option for people who want a safe place to store and grow their money.

The key benefits of savings accounts include:

• Ability to earn interest: Savings accounts earn interest from 0.01% to over 5% APY, depending on the type. Over time, compounding interest can grow your wealth.
• FDIC Protection: Most savings accounts are FDIC-insured, which means your money is protected up to $250,000 per person per account.

Types of saving accounts

Like checking accounts, there are many savings accounts to consider.

How to find the best bank account for you

If you don’t have any bank accounts and you’re opening one for the first time, a checking account is the best first choice. This account is the center of your financial life and is vital to managing your finances.

Once you have a checking account, consider opening a separate savings account. Savings accounts are ideal if you’re saving for a specific goal or want a place to store cash you don’t expect to need frequent access.

“The decision ultimately hinges on individual financial goals and needs,” says Tyler Meyer, a certified financial planner. “A checking account provides liquidity and easy access for everyday transactions, making it ideal for managing daily expenses. On the flip side, savings accounts offer a higher interest rate, promoting the growth of emergency funds or funds earmarked for short-to-medium-term goals.”

The bottom line

Checking and savings accounts are both designed to help you reach your money goals. With a checking account, you’ll get easy access to your money, while a savings account can help you grow your money over time.

Choosing the right account aligned with your financial habits will help you earn more and save over the long term. Do your research to find the right one for your needs.

Editorial disclaimer: Opinions expressed are author's alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.