Checking Accounts vs Savings Accounts

Know the differences between the two types of bank accounts

Written by CFI Team

What are Checking Accounts vs Savings Accounts?

A bank client can choose to open checking accounts vs savings accounts depending on several factors, such as purpose, ease of access, or other attributes. A checking account is a type of bank account that is used for everyday transactions. It is the most basic account that banks, credit unions, and small lenders offer.

On the other hand, a savings account is a bank account intended for storing money. It is where people keep money which they don’t need to use right away. Unlike a checking account that does not usually yield interest over time, a savings account helps individuals to grow their money, whether they need to access their cash or not.

Differences Between Checking Accounts vs Savings Accounts

1. Account Fees

When an individual opens a checking account, the bank will require that it meets a certain criterion. For example, they may need to maintain a specific amount of money in the account. This amount is what is referred to as the minimum balance requirement.

Some banks require their customers to make a minimum number of transactions per month. If the checking account holder fails to adhere to the given regulations, they are likely to incur monthly maintenance fee.

Also, there are other fees that the bank or other financial institution can impose on a checking account holder. They include ATM fees, overdraft protection fees, overdraft charges, as well as fees for online access. The exact amount of the fees varies from one bank to another.

In contrast, a savings account is typically free of fees. The only requirement for such an account is usually that the user does not exceed their withdrawal limit. However, there are some banks that impose a minimum balance requirement like the one for checking accounts. Bank of America requires users to either maintain a minimum balance or conduct a certain number of transactions. If not, affected customers risk paying account maintenance fees.

2. Interest Rates

With most banks and credit unions, checking accounts earn little to no interest. Conversely, a savings account attracts interest. However, the interest differs from one bank to another. To determine the applicable rate, banks take into account two main things – the type of savings account maintained by an individual and the sum of the money deposited in the account.

The interest rate of a checking a count is always lower than that for a savings account. Online banks, such as EverBank and Ally, usually offer higher interest-bearing accounts than traditional banks.

3. Bill Payments

When one opens a checking account, he will gain access to conducting a number of transactions. For example, the account holder is able to create an automatic bill pay function for recurring payments such as electricity and water bills. He can also use the account to make one-off payments.

However, a savings account does not allow for such transactions. So, if an individual wishes to perform such transactions with money in a savings account, he must first transfer money from his savings account into his checking account.

4. Debit Cards

A checking account often comes with a debit card, which makes it easy to access money through an ATM, as well as pay for goods or services. However, it’s important to note that a debit card only allows the account holder to use money that is already in the account.

Savings accounts are different, as they don’t come with debit cards.

5. Restrictions/Limitations

With a checking account, one can perform as many transactions as he wants. He can withdraw and make deposits an infinite number of times. However, service fees may apply to transactions beyond a specified monthly limit. For example, a checking account holder may have to pay fees for writing more than 10 checks in one month.

Contrarily, a savings account is meant for occasional uses. Most banks place a limitation on the number of times that one can withdraw money from the account within a given period. The average number of withdrawals that one can make in a month is three to six. However, there is no limitation when it comes to the number of deposits.

Comparison Chart

Features	Checking Account	Savings Account
Withdrawal limits	None	An average of three to five withdrawals every month. Also, the user can only withdraw a portion of the money.
Minimum balance requirement		Occasionally, depends on the bank
Purpose	Day-to-day operations	Keeping money for the short term or long term
Fees	Depends on the bank	Varies from one bank to another
Interest-bearing	No interest earned	Yes, yields interest over time
Access	At any time	Limited
Additional attributes	Overdraft and external online transactions	No facilities except for the internal online transactions with a few banks.

The Bottom Line

A checking account is designed for day-to-day operations. Essentially, one is not limited by the number of transactions he can perform using the account. A savings account, on the other hand, is meant for saving money for a long period of time. The idea is to keep money in this account long enough to enable it to yield interest.

Additional Resources

CFI offers the Commercial Banking & Credit Analyst (CBCA®) certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following CFI resources will be helpful: