A checking account is a type of bank deposit account that is designed for everyday money transactions. The money in a savings account, however, is not intended for daily use, but is instead meant to stay in the account — be saved in the account — so that it might earn interest over time. Savings accounts have higher interest rates than checking accounts, meaning it is better to let large sums of money (e.g., an emergency fund) sit in savings instead of checking. The fees and other criteria for checking and savings accounts — such as monthly account maintenance fees, minimum account balances, and interest rates — vary slightly from one bank to another.
|Checking Account||Savings Account|
|Withdrawal Restrictions||None||Typically 3-6 withdrawals a month. Allowed to withdraw only a portion of the account balance.|
|Minimum Balance||Sometimes, varies by bank||Sometimes; varies by bank|
|Designed For||Regular use||Saving money risk-free for short- or long-term|
|Fees||Sometimes, varies by bank||Sometimes, varies by bank|
|Interest Earned||Nominal/none||Yes, but amount varies wildly by bank or credit union|
|Overview||A type of bank account that is designed for everyday money transactions.||An account that accrues more interest than a checking account does; intended for saving money.|
|Access||Any time||To use money, account holder must first transfer it to checking account (usually)|
|Other Features||Overdraft, external online transactions (money transfer, manual/automatic bill pay)||No facilities other than internal online transactions with some banks (i.e., transfer from savings to checking)|
Many banks require checking account holders meet some criteria; for example, to set up the direct deposit of paychecks into a checking account, the account owner must usually maintain a minimum balance or make a minimum number of transactions each month. When these criteria are not met, banks often charge users monthly maintenance fees. Banks may also impose ATM usage fees, overdraft charges, overdraft protection fees to avoid overdraft charges, and fees for online access and bill paying. These vary depending on the bank, with some banks and credit unions, like Ally, charging very few fees.
Most savings accounts are fee-free, as long as owners do not exceed their withdrawal limits. However, some banks, like Bank of America, require account owners keep a minimum daily balance or make a certain number of money transfers into the savings account every month to avoid account maintenance fees.
This short video explains the differences between savings and checking accounts:
Checking accounts typically earn little to no interest, depending on the bank. Savings accounts always accrue interest. The interest rate depends on the bank, the type of savings account (e.g., see Money Market vs Savings Account), and the amount deposited, but is always higher than the interest rate on checking accounts.
As of May 2016, the highest interest rate on savings accounts (in the United States) is about 1%. Online banks, like Ally and EverBank — those without traditional brick and mortar businesses — often offer higher-yielding accounts than can traditional banks, but some credit unions can be equally good, if not better.
Several other online transactions are possible with a checking account. For instance, with online banking, an account owner can set up automatic bill pay for recurring payments like rent, water/electric bills, etc., and even make one-time payments.
Such transactions are usually impossible with a savings account, although one can transfer money from his or her savings account to a checking account.
Checking accounts often come with debit cards that allow withdrawals from an ATM and pay for items in stores. Debit cards only allow users to spend money that is available in the account.
Savings accounts typically do not come with debit cards, so withdrawals must either be transferred to a connected checking account online, requested over the phone, or done in person at the bank.
There are no limits on the number of transactions (withdrawals and deposits) that can be made to or from a checking account.
Savings accounts are designed for occasional use, so they usually have restrictions on how often money can be withdrawn. The limit is typically three to six withdrawals a month, including electronic transfers and automatic payments. There is no limit to the number of deposits one can make into a savings account.
A checking account is typically used for regular spending and purchases, like paying bills, shopping for groceries, etc. While it is possible to withdraw money from a savings account at an ATM, by default ATMs withdraw cash from a checking account.
A savings account, as the name suggests, is used to save money for a longer period of time. The idea is to let that money accrue and not use it unless there is an emergency or until it is time to pay for college tuition or purchase a significant item, like a house or car.