//Checking vs Savings Accounts: What Are the Biggest Differences?

Checking vs Savings Accounts: What Are the Biggest Differences?

There’s no doubt that Americans rely on banks to better manage their savings. In fact, the average American household has $175,510 worth of savings in bank accounts and retirement savings accounts, according to a recent study by MagnifyMoney. (Disclosure: MagnifyMoney, like Student Loan Hero, is owned by LendingTree.)

The primary bank account vehicles for consumers are checking and savings accounts. Both give financial consumers a protective place to park their money, yet each are best used for different purposes.

While there are multiple differences between the two types of consumer bank accounts, the primary difference between checking vs savings accounts can be found in the way each account is structured.

Checking vs. savings accounts: Key differences

The differences between checking and savings accounts go deeper than basic saving and spending. Via the chart below, let’s take a deep dive on both types of bank accounts and examine what each does effectively, and how they vary from one another.

Savings Checking
Best used for Cash you want to keep safe but still take advantage of higher interest rates; Short-term expenses Daily spending needs
Minimum balance requirement Usually no minimum required for basic savings accounts. Basic checking accounts rarely require a minimum deposit amount, but may charge a maintenance fee if you don’t keep a certain amount in your account.
Interest 1.52% APY average for online banks 0.19% APY on average overall
Typical fees -Excessive withdrawal fee

-Overdraft fee

-Overdraft fee

-Monthly maintenance fee

Withdrawal limits Limited to six withdrawals per month or you an risk excessive withdrawal fee No limits on numbers of transactions per month typically

Let’s flesh out the similarities and the major differences between checking and savings accounts, using the primary chart topics listed above:

Usage. Bank savings and checking accounts exist for different reasons.

Savings accounts are designed to save money over a long period of time, enhanced by interest paid to the customer by banks and credit unions, for the right to have their money held on deposit. Savings accounts are not designed to be used on a daily basis – they’re accounts built for the long haul.

Checking accounts are designed for everyday usage, to pay bills, to spend on household needs like food, clothing, day care or any consumer financial expenses the checking account holder must cover. The checking account acts as a financial intermediary for the consumer, who uses the account to handle financial transactions and to both receive and disburse money.

Minimum balances. Savings and checking accounts differ in minimum balance requirements. While most bank checking accounts don’t require a minimum balance, and most banks don’t require a minimum deposit for basic deposit savings account, certificates of deposit and money market accounts are a different story. For example, some money market accounts may require a minimum deposit of up to $2,500 to open an account.

Interest payments. Banks can pay interest for both savings and checking accounts, but typically savings accounts earn higher rates. In early 2019, for example, the average bank checking account pays up to 0.81%, according to the U.S. Federal Deposit Insurance Corporation (FDIC). It’s worth noting that many banks don’t pay interest on checking accounts anymore, but online banks are more likely to do so.

Meanwhile, the average bank savings account pays up to 0.84%, according to the FDIC. You can easily get rates above 2% APY if you’re willing to check out online bank offerings.

Typical fees. The “fee factor” between saving and checking accounts matters, too.

By and large, banks don’t charge high fees for basic savings deposit accounts – they can expect to pay a nominal account opening fee of $25 and a monthly maintenance fee of around $5. Also, banks may charge account minimum fees for money market and CD accounts. Many banks are actually doing away with basic savings accounts fees — check with your financial institution and see if they charge a savings account fee. If they do so, ask them how you can waive the fee – they’ll likely have options for you to do so.

Checking account fees can really stack up, however. In the normal course of business, checking account maintenance fees, minimum balance fees, overdraft fees, return deposit fees, ATM fees and paper statement fees can eliminate any gains your making from the nominal interest rate paid out by banks.

It’s always a good idea to talk to your bank directly about eliminating checking account fees, too. For example, agreeing to overdraft protection can help you curb pricey overdraft fees and agreeing to have your monthly statement presented online can eliminate paper statement fees.

Online bill pay. Bank checking accounts now consider online bill pay as a basic service for checking account customers, including mobile bill pay options. Bank savings accounts, which don’t want you dipping into account savings, don’t offer online bill payment for customers, although customers with a savings account can transfer funds into a checking account to cover bills.

Types of savings accounts

Savings accounts are designed specifically to do what their names suggests – save money. The amount of money saved depends on the customer, but a bank savings consumer can choose from three main types of saving account options:

A standard savings account is a type of deposit account that offers a higher interest rate thank a checking account typically.The standard limitation with savings is that you are limited to six withdrawals or transfers per month, or risk getting hit with fees.

CDs are savings vehicles designed to hold money for a longer period of time than traditional savings accounts, and frequently pay higher interest than deposit accounts. But they require you to typically lock up your funds for set periods of time and often charge penalties if you withdraw the funds before the term is up.

Lastly, money market accounts pay consumers the highest interest rates, and require a significantly higher initial account deposit than with other deposit accounts.

Types of checking accounts

Checking accounts are designed for an alternative, yet equally important purpose — to act as a financial tool to manage daily living expenses, like bill-paying, grocery shopping, recreational spending and other consumer financial needs.

As opposed to savings accounts, which are built for the long haul, checking accounts are designed to be used on a regular basis.

Checking vs. savings: How to choose

While bank checking accounts and savings accounts do have differences, especially on spending versus saving money, the best approach is to open both accounts with your financial institution.

Aside from saving money on fees (banks routinely cut some fees if you have active checking and savings accounts with them), you can transfer money between the two accounts, have a designated account for spending and a dedicated account for savings at the same financial institution, and tie your basic spending and savings needs into one neat bundle.

That’s a win-win scenario for any bank consumer.

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