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Checking vs. Savings Accounts

Approximately 5.4% of American households are unbanked, meaning nobody in those families has a bank account. Approximately 7.1 million households exist in the United States. Different bank accounts can help meet different needs for staying on top of your finances, though they don’t function similarly.

What Is a Checking Account?

An account held at a financial institution that allows you to make credit and debit transactions is called a checking account. These types of accounts usually offer a debit card and check-writing capabilities. Withdrawals can be cash from a branch or ATM, a debit card purchase, check, money order, ACH transfer, or wire transfer. Similarly, deposits can be cash, check, money order at a branch or ATM, mobile check deposit, ACH transfer, or wire transfer.

John Bergquist, President at Lift Financial in South Jordan, Utah, says, “If you need to use funds for daily transactions, a checking account is the best way to do that.”

A checking account is useful if you need to:

  • Pay bills electronically or via check
  • Make purchases or ATM withdrawals using a linked debit card
  • Transfer money to an account at a different bank electronically

If a checking account is interest-bearing, the money deposited in the account earns interest so long as it remains in the account. Other financial institutions, such as brick-and-mortar banks, online banks, and credit unions, offer these accounts.

What Is a Savings Account?

A savings account is a deposit account designed for holding funds not meant for everyday use, like paying bills or spending. For example, you might open a savings account to save up for an emergency fund, set aside money for a vacation, build your down payment for buying a home or save money for home improvements. Savings accounts are offered at financial institutions like traditional banks, online banks, and credit unions, just like checking accounts.

You’re less likely to earn interest with a checking account than with a savings account. However, the APY savers’ earnings aren’t uniform and can vary from bank to bank. As of May 2022, the average national savings rate was 0.07%.

Bergquist says that an online savings account is a much better option at an almost 20 times higher rate than the traditional checking account. She states that it is even very similar to what you would earn when purchasing a 10-year Treasury bond.

Owing to their lower overhead and operating costs, online banks often have the capability to pass on higher interest rates to savers. The rates can vary widely, but it’s not unthinkable to find high-yield online savings accounts from banks and credit unions earning an APY in the range of 1.90% to 2.25%.

Special Considerations

One key advantage of checking accounts is that withdrawals are virtually unlimited. For example, you could use your card 10 times a day to shop, make daily cash withdrawals, and pay your bills without being penalized by the bank. This started with Regulation D, which was a rule imposed on banks by the Federal Reserve, but that may not be the case with your savings account.

According to the rule:

If you exceed the maximum number of six withdrawals per month from your share savings account, savings account, or money market account (MMA), your account provider could charge you excess withdrawal fees.

The following transactions counted towards the limit: ACH withdrawals, overdraft transfers from savings to checking, transfers made via online banking or by phone, debit card point-of-sale (POS) transactions, and transfers or withdrawals made via fax.

When unlimited withdrawals from savings accounts were allowed, they could be made in person, via mailed request, or at an ATM.

Some financial institutions may still charge their customers excess withdrawal fees if they’re made from a savings account, even though Regulation D withdrawal restrictions were lifted in April 2020.

You should always ask your bank or credit union for the rules about your savings account so that you are not surprised by unexpected fees.

Checking vs. Savings Accounts: Which Is Better?

You may find that one checking or savings account is better suited than another to your needs. In some cases, you may benefit most from using both. Here are some questions to consider when shopping around for a checking or savings account. Is there a monthly maintenance fee, for example? What is the minimum balance requirement? Which one comes with a savings account, an ATM card, or a debit card?

For checking accounts, are there daily limits on ATM withdrawals? For checking and savings accounts, are there daily limits on deposits? What is the APY of the account if it earns interest? See if the bank offers any special perks for opening an account. In a ridiculously low-interest-rate environment, banks are highly competitive, and there are occasional incentives that could make checking or savings account more attractive,” O’Donnell says. For example, you may be able to join a debit card rewards or discount program that could save you money, or you could take advantage of promotional deals for opening other accounts, such as a money market or certificate of deposit (CD). Consider the following when choosing a checking or savings account: the bank’s digital accessibility, the number of ATM locations, and branch banking availability.

How Much Money Should You Have in Your Checking Account?


You should have at least the minimum balance required by your bank in your checking account, or you risk being hit with service charges that eat away at your balance. It’s always a good idea to keep at least one to two months’ worth of expenses in your checking account in case of an emergency.


What Do You Need to Open a Checking or Savings Account?

You’ll need several things before you can open any kind of bank account, whether it’s a checking or savings account. That’s because the financial institution needs to verify your identity. You’ll need a valid piece of government-issued identification, such as a passport or driver’s license, proof of your address, or your Social Security number.

You will need to bring the required deposit with you if your bank has one.

Which Savings Account Earns You the Most Interest?

Although the interest rate on most savings accounts is fairly low, there are several options available for higher rates—you just have to look. Tiered accounts offer higher rates as you deposit more money, while high-yield savings accounts pay more when you deposit a higher balance (usually over $5,000). You may want to open a money market account if you want the features of both a checking and savings account. This type of account uses the money you deposit to invest in other vehicles. However, it is still highly liquid.

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