Checking vs. Savings Account

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Don’t have a bank account? More than 8.5 million households in the United States are unbanked, which means they don’t use a financial institution, according to the Federal Deposit Insurance Corporation (FDIC).

Even so, there are some advantages to having bank accounts, and establishing good spending habits and creating a permanent financial record are two reasons it’s a great idea to consider opening a checking or savings account.

For example, if you apply for a mortgage or other loan, you’ll usually be asked to present recent bank statements.

Interested? Here’s what you’ll need to know about both checking and savings accounts.

Checking vs. Savings Accounts: Overview

A checking account allows you to withdraw money, write checks and transfer money. An individual checking account is owned/used by one person, whereas a joint checking account can be accessed equally by more than one person (a married couple, for example).

Checking Account Overview

Most checking accounts don’t earn interest and there are no maintenance fees.

Other types of checking accounts include commercial (for businesses) and student checking accounts (often free for college students).

You may pay a few fees for checking accounts, which can include:

  • A monthly maintenance fee, which is a set amount your bank charges for servicing your account, especially if your account balance falls below a certain amount (usually around $2 to $5).
  • An overdraft fee, which is charged when a withdrawal occurs that exceeds your account balance (around $35). You can also purchase overdraft insurance, which will cost you $5 to $10 per month to avoid such fees.
  • A stop-payment fee is an amount you’re charged if you want to revoke a check you’ve written and stop the payment intended for a person or business (around $35).
  • A non-sufficient funds fee applies when you write a check but your account doesn’t have enough to cover it (around $15).
  • Paper check fees are charged when your order a box or sheet of checks (usually between $20 to $30).
  • ATM fees apply if you use an ATM not affiliated with your bank (up to $5 per transaction).

You simply fill in the recipient, amount, date and memo (describing what the check is for) and mail it or present it to the person or business.

Savings Account Overview

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A savings account allows you to deposit, withdraw and transfer money. However, there may be limits and fees for certain transactions.

Most savings accounts earn interest. An individual savings account is owned/used by one person, whereas a joint savings account can be accessed equally by more than one person. One of our favorite savings accounts right now is the one offered by Credit Karma which has one of the highest APYs on the market.

Other types of savings accounts include commercial, student and money market accounts. A money market account usually has a higher balance requirement and offers a better interest rate. Fees you may pay include:

  • A monthly and/or annual minimum balance fee, which is charged to your account if your balance falls below the bank’s established minimum amount (up to $10).
  • A withdrawal fee, which applies when your withdrawals exceed the bank’s set limits (2 to 4 per month; usually costs between $4 to $10).
  • An overdraft fee may be deducted from your savings account if you transfer funds from another account and you don’t have enough to cover it.
  • ATM fees apply if you use one an ATM not affiliated with your bank (up to $5 per transaction).

Checking vs. Savings: Who Are They For?

Checking accounts are useful when you need to pay for goods or services (such as a car payment or rent). A check is considered legal tender and documents who you’ve paid, the amount you’ve paid and the date.

You can also make payments from your checking account directly online, whether you’re buying something from a retail store or paying your gas bill.

You can also use your checking account to transfer money between checking and savings accounts and withdraw cash from an ATM.

Savings accounts allow you to deposit money and leave it, so it can grow and accrue interest. Need to save money for college tuition or retirement? A savings account is the best place for your money.

You can deposit and withdraw money from a savings account, but there may be a minimum balance requirement. You can also transfer money between savings and checking accounts, pay for goods and services online and withdraw cash from an ATM.

You can link a debit card directly to your checking or savings account, which can be used instead of cash when making purchases.

It is similar to a credit card, but unlike a credit card, the money is immediately transferred directly from your bank account. You can withdraw money or pay for items with a debit card.

Monitoring your account is a breeze with online banking and mobile apps. That, along with the high-security features banks now offer, will help you keep your money safe and available when you need it.

Checking vs. Savings: How Do You Sign Up?

To get a checking or savings account, you’ll need:

  • Proof of state identification (driver’s license or state ID)
  • Social Security card
  • Business license (if you’re applying for a commercial account)
  • Funds to deposit (check on the minimum requirement)

You’ll have to fill out paperwork that includes your name, address, phone number, occupation and date of birth. Banks often run a credit check just to be certain you don’t have a history of writing bad checks or overdrawing on a checking or savings account.

Once approved, you’ll receive a debit card you can use for purchases and withdrawals.

You can also sign up for online access so you can check your account balances, perform transactions online and download your bank’s app so you can access your account from your phone.

Checking vs. Savings: Interest Rates

According to the FDIC, the average annual interest rate on savings accounts is 0.09%, 0.16% for money market accounts and 0.06% for interest-bearing checking accounts.

Those amounts are the percentage of interest your deposits will earn if they remain untouched.

Checking vs. Savings: Account Minimums

Banks often offer checking accounts that don’t require a minimum deposit. Ally Bank and First National Bank, for example, offer checking accounts with no minimum deposit requirement.

Many banks don’t require a minimum deposit for savings accounts but you must maintain a certain balance if you want to earn interest and avoid minimum balance fees.

Checking vs. Savings: Availability

Typically, you’re able to withdraw money from an ATM that’s affiliated with your bank up to a certain amount each day, for both checking and savings accounts.

Savings and money market accounts are subject to Regulation D, a Federal Reserve law which applies to U.S. banks. Under Regulation D, you can’t make more than 6 savings withdrawals per month.

As for writing checks, some banks limit the number of checks you can write per month, so check with your bank’s policy.

Checking vs. Savings: Insurance

Both checking and savings accounts are insured for up to $250,000. The Federal Deposit Insurance Corporation (FDIC) is the government regulatory agency that insures banking institutions, and the National Credit Union Administration (NCUA) insures credit unions. In other words, if your bank goes under, your money is safe.

Stash Your Cash

Keeping your money in a coffee can or carrying around a lot of cash leaves you vulnerable to theft and overspending. Debit cards and checks are safer and more convenient.

If you open a checking account, you’ll be able to keep a better record of your payments (versus paying in cash) and track your spending. If you open a savings account, you can deposit money and watch it accrue interest each month, so you can achieve your financial goals.

If you sign up for direct deposit through your job’s payroll department, you can have your entire paycheck (or a certain portion) automatically deposited into your checking or savings account, saving you a trip to the bank.

Also, check out the incentives some banks offer just for opening a new account. Some will pay you as much as $500 if you open a new checking account and make one minimum direct deposit, so it’s worth searching for deals online.

If you’ve never had a bank account before, you’ll be pleasantly surprised at how much easier life can be when your money is in one secured location.

Want to learn more? Check out Benzinga’s guides to the best online savings accounts, best checking accounts and best budgeting apps.