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After Navigation
Home Money Management Saving Difference Between a Saving and Checking Account
  • Contents
  • What is a Savings Account?
  • What is a Checking Account? 

The Difference Between Checking and Savings Account

ARindfleisch
By Ainsley Rindfleisch
November 7, 2022
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While both a savings account and checking account are bank accounts, a savings account is primarily used for saving you money while a checking account is intended for daily access to your money. It is important to have an established bank account to help you manage your money. A savings account allows you to safely keep funds you don’t intend to immediately use and can assist you in your savings goals. Checking accounts allow you to use a debit card to pay for items online or at stores (instead of using a credit card) or withdraw (take out) money from ATMs.  Checking accounts also allow you to write checks, although with online banking and electronic money transfers, checks are not used as much as they once were. 

The safety of your money is of upmost importance, so check to see if your deposits are insured by an independent government agency. Banks are insured with the Federal Deposit Insurance Corporation (FDIC) and credit unions are insured with the National Credit Union Administration (NCUA). These groups protect your money in case U.S. member banks or credit unions fail. Saving and checking accounts are protected. FDIC and NCUA protect up to $250,000 per depositor, per account type, per institution with both principal and interest accrued covered. 

Checking vs Savings Comparison Chart

What is a Savings Account?

A savings account is like a grown-up piggy bank. Savings accounts are meant to be a safe place to protect your money for future use. Most savings accounts allow you to earn interest on the money you have saved. Many financial institutions can limit how often you can transfer funds in and out of your savings account, making it less than ideal for day-to-day transactions.

Choosing a Savings Account

Many students choose a savings account from the same bank or credit union they use for their checking accounts. This allows for easy transfer of funds when you need to access money from your savings. 

When You Might Use It

If you are looking to save up for a purchase within the next year or more, it’s a good idea to place your money in a savings account. This will (hopefully) keep you from spending your saved money, and you can earn a little more interest than if you had just kept it in your checking account. 

Possible Fees

Depending on the terms set by your institution, you may be required to keep a certain amount of money in your account, or you could be penalized with monthly service fees. Some savings accounts limit you to six withdrawals a month and you may be charged a fee if you exceed this.  

It’s a good idea to also ask your bank or credit union about the rules associated with your savings account to ensure you’re not surprised with unexpected fees. 

Savings Account Benefits

Savings accounts allow you to access potentially higher interest rates, (interest expressed as a percentage, is money the bank pays you to keep your money with them). Typically, financial institutions offer an introductory interest rate that pays you a higher annual percentage yield (APY) for a short period of time before the rate will go down to the current rate offered which will be closer to the national average. 

Different banks offer different interest rates, so you may want to research and compare available interest rates. You may notice some institutions offer high-yield savings accounts, which will allow you to earn significantly more interest on the account than a regular savings account. However, don’t expect to be blown away with the interest earnings, the earnings are typically modest. You should be aware that interest rates can and do change, so be mindful as you work to choose the right savings account that is best for you. 

What is a Checking Account? 

A checking account is an account intended for day-to-day spending and making monthly payments. These accounts can be created at banks and credit unions and generally do not receive interest payments (though some accounts might have an APY, it will probably be lower than the APY associated with a savings account). Historically, checking accounts allowed you to write paper checks as a form of payment and while you can still write a check, payments are more commonly made with a debit card or electronic wire transfer. 

Debit cards look like credit cards but work differently as they immediately withdraw money you currently have in the bank. Similar to a credit card, you can use your debit card anywhere a credit card could be used. However, while some vendor may allow you to use a debit card like a credit card, don’t be surprised if certain vendors—like rentals car companies or hotels—require a security deposit for a certain amount that may take several days to return to your account after use of the service if you pay with a debit card.  Be mindful that your debit card may be declined if you do not have enough funds for a purchase.   

Checking accounts are a safe way to store the money you need daily for cash, electronic payments, or to automatically pay bills. To put money in your account, you can 

  • go to a physical branch to deposit checks or money,
  • sign up for direct deposit with your employer where your paycheck will automatically be sent to your account, or 
  • if your institution has an app, you may be able to take a photo of your check to electronically deposit it. 

Choosing a Checking Account

When it comes to choosing a checking account, you should first decide if you prefer a financial institution that is entirely online or one that has a brick-and-mortar presence. Online banking may come with lower fees, but it may be difficult to talk to a banker and you won’t have the option to physically deposit cash. Many college campuses have banks near to campus that allow you to easily access a banker for all your financial needs, whether it be a opening an account or applying for a credit card.

No matter if you have an online or physical bank, many checking accounts are similar. If this is your first account, there may be a withdrawal limit of how much money you can take out per transaction, so be sure to ask. As a student, you may be able to apply for a student checking account if you are between the ages of 18 and 25 and have proof of student status, along with a social security number and a driver’s license or legal photo ID. 

Many student accounts offer no (or lower) service fees than a normal account. (If there are fees associated, you may be able to get them waived by setting up direct deposit or having a specific minimum balance in your account.) You will probably be given a debit card to easily access your money, and your bank will likely offer mobile banking, along with text reminders to notify you if your account balance is low. Many banks will also offer you a savings account in conjunction with opening a checking account. 

When You Might Use it

Your checking account will probably be used for your day-to-day purchases. You can easily use your debit card to pay for your cup of coffee, or even to pay for your tuition, depending on how much money you have in your account, of course! Your checking account can be linked to other accounts, such as regularly reoccurring bills that are the same each month (monthly subscriptions, gym membership, or even your student loan payment) to auto draft, or automatically take the money out of your account each month. Your checking account can also be used for online bill pay for bills that vary each month, such as utilities. (Depending on the bill, you may be able to lower your monthly payment if you enroll in auto pay!)   

Possible Fees

Each bank may have none, some, or even more fees than those listed below. When looking at opening a checking account, you should research what fees may be applied and if there are possible ways to waive the fees. Common fees that are found with traditional checking accounts:

  • Monthly maintenance fee
  • Fee for going below a minimum account balance
  • Overdraft fee —this is for if you withdraw more money from your account than you have available. If you have a savings account attached to your checking account, you may be able to link your accounts for overdraft protection
  • Using an ATM that is out of network

Checking Account Benefits

The benefits associated with a checking account may seem basic, but they can help you save and protect your money. Unlike many savings accounts, a checking account allows you to make an unlimited amount of transactions each month. You may be able to find some checking accounts that will allow you to access any ATM in the nation for free. Some accounts will allow you to earn interest but be aware the possible interest you can earn with a checking account will be minimal. Some accounts offer sign-up bonuses and promotions that may have requirements to qualify, such as signing up with direct deposit. Research the banks to learn more about their promotions and see if it is a good fit for you. 

Opening a checking and or savings account is a great way to begin getting experience managing your own money and finances. The ability to manage your money in a way that allows you to control it and not the other way around, will be a life skill that will continue to reward you both now and in the future. 

 

 

 
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