What’s the difference between a checking & savings account?

In general, the answer to this question is pretty simple. Yet any time you go to open an account you’ll find multiple options with different benefits and restrictions. All of a sudden the simple choice between two accounts turns into a harder choice between 4 or 5.

As a bank, we’re here to help you understand the differences a little better, allowing you to choose the right account with confidence.

The difference between checking & savings.

A checking account is an account that is made for spending. It’s where you put your money to keep it safe while you use it to pay bills or buy groceries. While some may come with an interest rate, they typically draw little to no interest.

A savings account is made for, well, saving. It’s where you stash money for a future goal - like college or buying a new car - while it builds interest.

Benefits of checking and savings accounts.

The primary benefit of checking account is that they are convenient, allowing easy access to your money. Checking accounts come with a debit card so you can spend the money from your account without having to withdraw cash and carry it around. If you need to withdraw cash, you can do so at an ATM or one of the bank branches. Checking accounts will also come with or allow you to purchase checks.

This access to your funds is nice, but what’s even nicer is you aren’t limited on how much or how often you can spend money from the account. Debit cards often have a daily limit, which is intended to prevent someone from draining your account all at once if identity theft or fraud occurs. If you need to spend more than the daily limit on your card, you can call the bank and ask for it to be raised.

The primary benefit of savings account is that your money grows while it sits in the bank. Savings accounts typically gain interest - called the Annual Percentage Yield (APY) - that is calculated and added to your total account balance at the end of each statement cycle. The higher the APY, the more your money will grow.

Drawbacks of checking and savings accounts.

Checking account are not built for earning interest. If it does earn interest, the rate is typically low or capped so you will only earn interest on a certain portion of the money in the account.

Savings account often come with withdrawal limits. Typically the number of withdrawals allowed before a fee is six, but it could vary depending on the bank. So, you can still access the money in your savings account if you need to, but if you treat it like a checking account, you’ll end up paying more for it. You also do not usually have a debit card associated with your savings accounts, which makes the money less accessible.

Why do banks have a withdrawal limit on savings accounts? Until April of 2020 it was actually a Federal Rule that withdrawals on certain types of accounts, namely savings and money market accounts, would be limited to six. This was meant to ensure banks were keeping enough money on hand to cover a certain percentage of customer deposits.

While the rule was removed in April of 2020, banks have kept the same limits in place for the most part.

Looking for a checking account? Compare ours here.

How about a savings account? We have those too.

Key features to look for in a checking or savings account.

When choosing a checking account you’ll want to find one that has monthly maintenance fees that are easily waived, low minimum balance requirements, and good overdraft protection. You’ll also want to look for additional features like online banking and mobile banking, so you can easily view and manage your account.

For a savings account, you want to try and find a good rate. Looking at different banks to see what they offer can help ensure you get the best rate possible. You may also appreciate an account with no or easily waivable fees, and low minimum balance requirements.

While it may not always be easy to find all these features for both accounts at the same bank, it could be a good idea to open them both at the same one. This would make moving money from your savings account to another one of your accounts easier.

How much money should I keep in checking and savings?

We know that everyone’s situation is going to be unique. This is less about specific amounts and more about what you can accomplish personally.

That being said, you should keep enough money in your checking account to cover your monthly bills and expenses. Make sure you have enough of a buffer to keep from overdrawing your account and incurring an overdraft fee.

The amount you keep in your savings account depends on how much you have left over from expenses. Most experts say to put about 20% of your monthly income into savings¹. If you aren’t making any other investments, then a savings account may be your only method of growing your money long term. If you can’t do 20%, then setting a lower goal that is manageable is still a really good idea. Just being consistent over time can make a big difference down the road.

Saving toward a specific goal? Check out our savings calculators.

What fees do checking and savings accounts have?

Monthly maintenance fees - Both savings and checking accounts could have monthly maintenance fees. This is what the bank charges for holding the account with them. You can typically have them waived by meeting certain criteria like going paperless or staying above a minimum balance.

Overdraft fees - Checking accounts will incur a fee if you use more than you have in the account. This is called an overdraft, and it usually happens when you use your debit card to buy something that causes your balance to drop below zero. Savings accounts do not usually have this fee, mostly because they don’t normally have checks or debit cards tied to them.

ATM fees - If you use your debit card to withdraw money from an ATM that is not within your bank's network, this will usually incur a small fee. This applies mostly to checking accounts since most savings accounts do not have debit cards tied to them.

Withdrawal fees - If you go over the withdrawal limit on your savings account, there will be a fee which is normally assessed as a dollar amount per withdrawal over the limit. Checking accounts do not have this fee.

So, which one should you choose?

The good news here is that you really don’t have to choose between the two. If you want to open a checking account for spending, and a savings account to save money, then you can.

While there is no perfect amount of bank accounts, we would recommend having both because it allows you to keep the money you want to spend separate from the money you want to save.

It also keeps you from spending money that you intended on saving. This can happen if you keep all of your money in a checking account without a budget.

Learn how to keep a budget and download our free budget template in this article

So, which one should you choose?

If you only want to hold one account, there is an option that can give you the best of both a savings and checking account, and it's called an interest bearing checking account. We’ve written a great article talking about interest bearing accounts that you can read here. Basically, this type of account is great for growing your money while still having easy access to it.

Want to see how an interest bearing checking account can benefit you? Check out Southern Advantage!