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Savings vs Checking Accounts: What Is The Difference and How to Choose

You have a great number of options when it comes to how you want to manage your money. Banks offer a variety of different accounts. And you most likely know the basics of what each account is for.

For example, the main difference between checking accounts and savings accounts is the way they are used. While checking accounts are best for everyday spending and paying bills, savings accounts are best for keeping your savings on.

But you need to truly understand the feature and benefit differences between the two accounts to see why people use them for different types of money management.

So, here is a more detailed description of the accounts to help you choose which one is right for you – though it might be both.

savings vs checking account


Savings Account

As its name suggests, a savings account is an interest-bearing deposit account where you can save your money. Though most of the time the interest rate on these accounts is not high enough for it to be considered a great investment, it is safe and reliable.

Because of this, they are a great option for saving up in the short term, for example, if you want to build up an emergency fund or save up for a car.

You can only send and receive money electronically via the bank’s website or app, using the routing number of a savings account. This is due to the fact that it does not come with the usual checks or debit cards.

If you already know the amount you want to save each month, you can set up an auto-deposit onto your savings account from every paycheck you receive.

It is also good to keep in mind that there are federally regulated standards for savings accounts that limit bank customers to only six withdrawals and transactions each month.

Deposits do not count towards the maximum of six transactions. But if you set up bill payments with your saving account’s routing number, it will be counted in the transactions. All this obviously shows that a savings account is really not for spending money on a regular basis.

You can open savings accounts in almost every bank, whether it is a traditional or an exclusively online one. These types of accounts are important for banks, as they source the funds for lending and investing. Therefore, you can a lot of times even open savings accounts at investment and brokerage firms.

The rate of interest you earn on your savings account will most likely be variable. This means that banks and credit unions can change the interest rate by either raising or lowering it. In other words, even if the interest rate is high when you sign up, it is not guaranteed to stay at that rate.

Some banks have monthly fees on savings accounts. To waive these they will often require you to have a minimum balance on the account.

It is important to look out for these rules if you already know how much you want to save up on the account, and do not want to spend some of it on banking fees.

You will want to keep the fees to the minimum as you will already have to pay taxes on the interest you earn. Even though it is not generally considered an investment, the IRS considers the interest earned as taxable income.

If you earn interest on your account, you will owe taxes even if you take out or transfer the money elsewhere. You will be notified if you earned more than $10 interest. After the notification, your bank will send you a tax form 1099-INT in the beginning of the year for the interest you earned in the previous year.

The tax rate for your interest will be the same as your income tax rate. That is to say, it is basically just an addition to your earning for the year and it is taxed the same.

So, you will have to pay tax on your interest, but you will not be taxed on the full balance in your savings account. This is due to the fact that you already paid tax on whatever you put into your account.

savings account


Advantages Of Savings Accounts

  • Your money gains interest
  • Easy to move your money to or from

Disadvantages Of Savings Accounts

  • No tax benefits
  • Pays less interest than a lot of other types of investments
  • Only six possible withdrawals in a month
  • Some banks require you to have a minimum balance

Checking Accounts

When you open a checking account, you get a debit card which you can use for money withdrawal or make purchases. You can also use checks for the same purpose. Checks are also where the account’s name ‘checking’ comes from, as this was the usual way to pay before cards became the norm.

A checking account allows you to access your money quickly and easily for your daily transactions. Therefore, if you manage it responsibly, it helps you build a higher credit score. Because of these benefits, it is a great choice if you need a bank account to store your spending money on.

There are fees associated with if you withdraw or spend more money than you have on your checking accounts. However, the bank you have the account at might offer overdraft protection.

Overdraft protection means that you are able to link an account to your checking accounts, like for example, a savings account. In this case, if you have a negative balance, there will be an automatic transfer from your savings account to your checking account to get your balance into the positive again.

Apart from the traditional checking accounts, you have the possibility to get an online checking account. This is a convenient way to manage your money. For example, you can access the account tools on any device and have an easier everyday banking experience.

Apart from the easy access, they often offer a small interest rate on checking accounts. This is due to the fact that online-only banks have lower operational costs than traditional banks. Apart from giving you interest, they can also charge lower fees.

In contrast to this, most traditional banks do not give interest in checking accounts. That is one reason not to have a lot of money on this account, as it will just sit there instead of it growing with additional interest.

Since checking accounts process incoming payments and deposits, many of them have monthly fees that cost up to $20. There are some banks that have no monthly fees at all, and even at the ones that do there are possibilities for these costs being waived if you meet some requirements.

These requirements are usually either that you need to have a minimum balance, this is set by the bank, but you can expect it to be somewhere between $1,000-$1,500.

Another way to forgo the monthly fees is to have a direct deposit going onto your account. The banks will usually set the minimum direct deposit amount between $450-$1,000 per month.

To mention a great part of having a checking account as well, it is very liquid. This means that you can access your money using any method, such as ATMs, electronic debits, checks, among others. But the most convenient and usual method, using an ATM may come with additional fees.

Usually, if you use your own bank’s ATMs, there will not be any additional charge. But if you can only find ATMs from another bank, it could result in charges from both your bank and the one that owns the ATM you used.

So, if you want to open a checking account, there are two important things you should look for:

  • For the account not to have a monthly maintenance fee
  • Nationwide ATM access for free

If you cannot decide where to open your account, it is good to remember that a lot of times the banks offer sign-up bonuses for those who open a checking account and set up a direct deposit. These bonuses usually range anywhere between $100 to $500, which can be a deciding factor between two banks you already like.

checking accounts


Advantages Of Checking Accounts

  • Debit card
  • Easy access
  • Possibility to build a higher credit score
  • Possibility of direct deposit

Disadvantages Of Checking Accounts

  • Many of them have ATM and monthly fees
  • A lot of banks require a minimum balance

Main Differences Between Savings And Checking Accounts

Here are the main differences between a checking and a savings account summarized:

Name of account Checking Savings
Main usage Spending Saving
Limits on withdrawal No limit Six per month
Interest Sometimes, it is usually minimal Yes, different rates depending on bank
Features – Debit card
– Direct deposit
– Overdraft protection
– Online and mobile bank services
– Payes interest
– Direct deposit
– Online and mobile bank services

How To Choose Between Savings And Checking Accounts

For everyday use and spending, you should definitely choose a checking account. And for saving up in the short term, you should open a savings account. It really is not either-or when it comes to having a checking and savings account.

You can have both a checking and savings account, you can even link them if you have both accounts at the same bank. Some banks even offer to waive the monthly fees if you have a connected checking and savings account.

Having both accounts opened by the same bank can make it easier to manage and transfer money between the two accounts. However, you might not find the best benefits for both accounts at the same bank. Let’s look at what you will need to do once you made the choice of which bank, or banks you want to use.

How To Open Checking Accounts

There are only a couple of requirements you need to fulfill, to start off, you need to be at least 18 years old. Most minors can be added as joint account holders to a parent or legal guardian’s account as well. Additionally, some banks also require you to not have convictions for financial crimes or fraud.

If you fulfill these requirements, the opening process of a checking account is rather easy. You only need to fill out some papers in person or online at the bank you chose. After the paperwork is done and in the system, you have a functioning checking account.

However, the most important when you open your account is that you have the right documentation with you. Here is a list of documents you should bring:

  • Government-issued identification with your photos, like a drivers license or a passport
  • Social security card (SSN) or Taxpayer identification number (TIN)
  • Proof of address, this can be an official document that has both your name and address stated on it.

How To Open Savings Accounts

The documents you need to open a savings account are mostly the same as they are for a checkings account. Therefore, you will have to bring all of those we already mentioned. Additionally, you will need a bank account number and routing number. This is needed to fund your new savings account.

Just like for a checking account, there are some requirements you need to fulfill for opening a savings account. Overdrawn accounts, unpaid bank fees, or bounced checks could lead to your application being rejected.

savings vs checking accounts


Summary of Savings vs Checking Accounts

In conclusion, the main reason most people get a checking account is that it is convenient and easy to use. Additionally, they will no longer need to manually deposit each and every paycheck they receive. Instead, they will automatically receive their pay on their checking account.

As for a savings account, it pays higher interest than a checking account. It is a great choice for keeping short-term savings on. It is easy to get your money out, so this account is great for saving up your emergency fund.

So, if you want an account for everyday use, then a checking account is the best choice for you. And if you want to keep your savings safe and be able to use them any time, but still earn some additional interest on it, then you should get a savings account. We hope our comparison helped you choose which of these two different accounts is needed for you, and how to get started on opening one or both.