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Checking vs Savings Accounts: Optimize Your Funds
Saving and checking accounts have different benefits and uses.
Most people have checking accounts. However, it’s not always clear how checking accounts are different from a savings account and why someone would likely want both types of accounts.
Checking accounts provide flexible, quick access for daily transactions, while savings accounts typically offer higher rates on deposits, especially when they are high-yield savings accounts (HYSAs). Learn how to better optimize your financial future by strategically allocating funds between both account types.
Key Takeaways
Using both checking and savings accounts may make managing your finances easier by helping you track your spending and build your savings.
Checking accounts are designed to be used for transactions and purchases and typically don’t have limits on the number of times you may withdraw money from the account. Savings accounts are designed to help you save money and may limit the number of withdrawals you may make in a month.
Both checking and savings accounts may have fees associated with them, so be sure to research any account before you open one.
Savings vs Checking Accounts
Savings accounts and checking accounts work in different ways. Checking accounts are primarily for transactions and typically the account owner uses a debit card, physical checks, or automatic withdrawals to make purchases and payments as needed. Checking accounts typically don’t earn interest on the money you keep in them, but some may earn a very low rate.
Savings accounts, on the other hand, are primarily designed to help you grow your money for the future. Savings accounts are interest-bearing, meaning you earn interest on the money you keep in the account. The higher the rate (expressed as Annual Percentage Yield or APY), the more you earn and the faster your savings may grow.
Many people link their savings account to their checking account to allow for easy (and preferably quick) transfers between the two. For example, you may routinely transfer money to savings to build funds for a major purchase and then choose to move the money back when it’s time to pay for the purchase.
Checking Accounts | Savings Accounts | |
|---|---|---|
Common Purposes | Payroll deposits, making purchases, paying bills | Saving money |
Common Access Methods | Debit cards, personal checks, ATMs, online transfers, in-person withdrawals if possible | Online transfers, in-person withdrawals if possible |
Typical Rates | Average rates of 0.08% APY, as of August 19, 20241 | Average rates of 0.46% APY (High-yield accounts may have rates near 5.00% APY!), as of September 2024.2 |
Common Fees | Maintenance, overdraft, ATM, minimum balance | Maintenance, exceeding withdrawal limits |
Withdrawal Limits | Usually none3 | Some banks limit customers to six withdrawals per month4 |
Do I Need a Checking Account and a Savings Account?
Having both a savings and checking account may make it easier to manage your finances. A checking account may allow you to set up direct deposit for your paycheck, pay bills, and access cash from an ATM when you need it.
Opening a savings account gives you a place to store funds for a vacation, emergency, or other reason. It also keeps this money separate from your transaction funds, which may make it easier to track progress toward your goals.
Here are a few other benefits you often see with each account:
Savings Accounts | Checking Accounts |
|---|---|
Tend to earn higher rates, which may help your money grow faster. Funds may be less accessible than a checking account, potentially curbing splurge purchases. | Provide debit cards for purchasing convenience. Usually don’t limit the number of withdrawals in a month. Direct deposit for paychecks. |
How Much Money Should I Keep in a Checking and Savings Account?
Everyone’s financial situation is different, so the amount you keep in your checking and savings account likely varies based on your needs. That said, there are a few guidelines you could follow to help you manage your finances well with both accounts.
Ideally, your checking account should have enough to cover your monthly bills and any purchases you might make. If you don’t have enough money in your checking account, you risk overdrawing it and may incur an overdraft fee. Some banks allow you to connect your checking and savings account and transfer funds to cover overdrafts or offer overdraft protection.
Your ideal savings account balance depends on the goal you have for the account. For example, if you’re using it to build your emergency fund, you may want to have at least three months’ living expenses saved at any given time.5 On the other hand, if you’re keeping future vacation funds in there, the balance may be a little lower. Some people even choose to have a separate savings account for each financial goal!
The most important thing to keep in mind is that your checking and savings accounts are yours and should be used in a way that works for your long and short-term goals.
Tips for Choosing a Checking or Savings Account
Not all checking and savings accounts are created equally and finding one that fits your needs may be difficult if you’re not sure what to look for. Here are a few key factors to keep in mind as you start your search.
Rates: Since banks offer different rates on both checking and savings accounts, compare the rates at each bank and for each account you’re considering. Search for high-yield savings accounts that may offer rates as high as 5.00% APY, as of September 2024.6
Accessibility: Consider how often you may need to access your money. For example, many digital banks partner with an ATM network to allow you to withdraw cash and support digital transfers to other accounts or institutions.
Balance Requirements: Some banks have minimum balance requirements, which refer to the amount of money you’re required to leave in the account to avoid being charged fees. That said, many digital banks don’t have these fees.
Insurance: Look for banks that insure your money. Insured banks are chartered members of the Federal Deposit Insurance Corporation (FDIC) and provide up to $250,000 of FDIC-insurance per depositor, per institution, per account type.
Fees: Some banks charge fees for ATM withdrawals, monthly account maintenance, and other features. Before you open an account, compare the fees you may be charged.
Final Thoughts
Opening both checking and savings accounts may make managing your money easier and offer you additional financial stability and flexibility.
A checking account gives you easy access to funds for paying bills and handling purchases while a savings account makes it easier to track progress toward a savings goal or put your money to work for you at a high rate.
The key is to find the right account mix that works for your life and goals.