Checking vs. savings accounts: What they are and how to use them
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Key takeaways:
- Checking accounts are for everyday spending, while savings accounts help you grow your money over time.
- Having both accounts allows you to manage daily expenses while keeping savings separate and earning interest.
- Finding checking and savings accounts with the features that fit your lifestyle is key.
When it’s time to open your first bank account, all the options can get a little overwhelming. From checking accounts to savings accounts to certificates of deposit (CDs) and more, you may not know what is the best option for you.
This can lead you to wondering what the difference is between checking vs. savings accounts. Below, we outline what each account is, how they work, and how having both accounts can be the most beneficial choice.
Differences between a checking vs. savings account
There are a few things to consider if you’re trying to figure out if you want to open a checking or a savings account. We’re here to help. Let’s learn the key differences between a checking and savings account.
What is a checking account?
A checking account is used for all your daily financial needs. Want to buy a snack? Use your checking account. Need to pay for a new app for your phone? You guessed it... use your checking account.
The reason it’s called a checking account is because traditionally you’d write a check to pay for things with money in the account. While paper checks still exist, they’ve mostly been replaced by debit cards and online peer-to-peer payment interfaces like Zelle, PayPal, Venmo and CashApp.
Today, when you want to purchase something in a store using your checking account, you swipe your debit card and enter your personal identification number (PIN).
Since checking accounts are for daily use, they generally offer little to no annual percentage yield (APY) — also known as interest. The average APY on a checking account is just 0.07%, though some online banks offer significantly higher APYs.
But the benefit of a checking account is that you can make as many transactions as you’d like without a penalty. They also usually have no minimum balance requirement — the lowest balance required to avoid a maintenance fee — if you meet certain conditions, such as having your paycheck directly deposited into your account.
What is a savings account?
A savings account is where you can put the money you’d like to save — hence the name “savings account.” Unlike a checking account, a savings account is not set up for daily use in most cases.
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And because you want your savings to grow and the bank wants to entice you to keep funds in the account, they generally have higher APYs than a checking account. The average APY on a savings account is 0.41%. Many online banks offer savings accounts with even higher APYs.
Savings accounts usually don’t have a debit card that you can use at a store. Instead, you may be given an ATM card, so you can withdraw cash from the bank. In addition, you can generally do same-day transfers from your savings account to your checking account.
Be careful when making transactions out of your savings account, as some banks limit the number of fee-free transfers you can make each month. After you pass that limit, your bank may charge a fee for each transaction.
Here is a quick look at how checking and savings accounts compare:
Feature | Checking account | Savings account |
|---|---|---|
Primary purpose | Daily spending and transactions | Setting aside and growing money over time |
Access to money | Frequent withdrawals via a debit card, checks, and online payments | Limited withdrawals, money usually transferred to checking when it is needed |
Interest (APY) | Usually little to no interest earned | Typically earns interest, helping savings to grow |
Transaction limits | No limits on transactions | May have withdrawal limits per month |
Fees | Some may have monthly fees, overdraft fees | Often low to no fees, but may require a minimum balance |
Best for | Daily expenses, bill payment, direct deposits | Emergency funds, long-term financial goals |
Benefits of having both a checking and savings account
When comparing a checking vs. savings account, you can decide to open one or the other but in most cases, it makes sense to have both accounts.
You can use the checking account to handle all your daily needs, then use the savings account to store the cash you’ve set aside for your financial goals and to earn interest. You can also connect the accounts and have automatic transfers from your checking to your savings to automate your savings. Some banks use your linked savings account for overdraft protection, where the bank will automatically transfer funds from savings to checking if you overdraft your checking account.
If you have direct deposit, your employer may allow you to automatically place a portion of each paycheck into both accounts, helping you to automate your savings.
Greenlight offers both options for kids and teens — with up to 1% cash back on all purchases** and up to a 5% Saving Reward on savings*. In addition, Greenlight members get a debit card, a robust money management app, the ability to learn to invest in stocks, and tools to help build financial literacy.
How to choose the right checking or savings account
Check out all the features of various checking and savings accounts to find the best one for you. Here are some features you may want to watch for.
Minimum balance and opening deposit requirements
When looking for the right account, check for a minimum balance requirement and any fees you may incur if your balance drops below it. The last thing you want is to get penalized because you’re young and still have limited income.
You’ll also want to know what minimum deposit you need to make to open the account. Banks today have brought this requirement way down, often requiring somewhere between $25 and $100. Some banks have even dropped this down to $0. That’s right! You can sometimes open a bank account with no money at all.
Annual Percentage Yield (APY)
The APY (or interest) you can earn on checking accounts is typically rather low. Plus, most people don’t carry high checking account balances month to month, so the APY may not have a big financial impact. However, it remains an important consideration when comparing checking accounts.
APY is far more important in a savings account than a checking account because the cash in your savings account is more likely to remain idle and earn interest. Plus, this interest will compound, so the bank will pay interest on the interest you previously earned, helping your savings grow even faster.
Greenlight tip: Skip the interest altogether. Opt for rewards instead. With Greenlight Infinity, kids can earn a 5% Savings Reward*², which will help their savings grow while they learn how compounding works.
Also, look out for interest tiers and limitations. Some banks will advertise a high APY but this may only apply to higher balances. For example, a bank may offer 3.13% on balances between $100,000 and $500,000. Interest-bearing banks can also go the opposite direction and only offer higher APY up to a certain balance. For example, earn 3.13% interest on the first $1,000 of your balance, then 2% interest on the remaining balance.
Keep in mind that interest rates will rise and fall with the federal funds rate set by the Federal Reserve. So, the APY you get now may not be the same in a few months.
FDIC insurance
It’s uncommon to find a bank account that is not Federal Deposit Insurance Corporation (FDIC) insured, but you still want to verify it is. The FDIC rules state deposits are insured up to $250,000 per individual per institution. For example, if your FDIC-insured bank goes out of business while your money is in it, you can still collect all your funds, given you had $250,000 or less at that institution. On the other hand, if you had $350,000 in two personal accounts at the same institution, you would only have FDIC coverage of $250,000 and could lose the remaining $100,000.
Pro tip: Look for a disclaimer mentioning the bank is “member FDIC” to determine if the bank you’re dealing with has this invaluable insurance. To learn more about FDIC rules, visit their deposit insurance page.
Transaction and withdrawal limits
Virtually every bank has limitations on the amount you can withdraw from your checking account using the ATM at once. These are typically between $300 and $1,000 per day. To make larger withdrawals, you’ll need the help of a bank teller at one of the branch locations.
If you think you’ll need to make large withdrawals from the ATM, you’ll want to ensure you’ll be able to at the new bank. This is even more critical with online banks. You can usually access cash via an ATM, but because there aren’t any physical bank branches, you won’t have quick and easy access to larger withdrawals. Instead, you generally need to transfer money to another account or request a check from the bank.
When it comes to a savings account, the federal government ended the per-month limit on outgoing savings account transactions, such as transfers to other accounts or withdrawals. But some banks still charge a fee if you make too many transactions — typically more than six a month.
If you’ll do a lot of cash swapping between your savings and checking accounts, this fee is something to consider.
Mobile deposit limits
Mobile deposit has become one of the most popular features in today’s banking, especially with online banks. Look at your prospective bank's mobile deposit limitations and make sure it will work for you, as some can be as low as $500 per day.
If you receive a check that exceeds the mobile deposit limit, you must deposit it at the bank, at an eligible ATM, or mail the check to the bank. And all of those options negate the convenience of having a mobile check deposit feature.
Other fees and charges
Banks have to make money somehow, and some of this comes in the form of fees. There are many fees a bank can charge you on a checking or savings account, including:
Monthly maintenance fee
Overdraft fee
Check writing fee
Wire transfer fees
Certified check fees
Foreign transaction fees
Out-of-network ATM fee
Many banks have eliminated some of these fees, such as maintenance fees and overdraft fees. Also, some banks will only charge you for outgoing wire transfers, but incoming transfers are free.
Before agreeing to open an account, check all these fees and compare them to your usage. For example, if you get paid via wire transfer — not a direct deposit — you want to ensure that incoming wire transfers are free. Or if a bank charges a monthly maintenance fee but waives it if you meet certain requirements, verify that you will consistently meet these requirements to avoid the fee.
Accessibility
Accessibility is an important issue regarding a checking or savings account, but it means different things to each person. To some, having a physical bank branch to walk into may not be as big of a deal as having a slick mobile app with robust features, which is like having the bank branch in your pocket.
However, others may prefer a bank with a nearby branch so they can make in-person transactions and get more direct customer service instead of a great mobile banking app.
So, find a bank that fits your specific needs in this area to ensure you remain happy with the service.
Cash back and other perks
Cash back isn’t just for credit cards anymore. The competitive banking landscape has led many financial institutions to offer cash back on debit card transactions too. While not every bank offers it, many now offer around 1% cash back on all qualified debit card transactions. Some may limit the amount of cash back you can earn, but you can still get a nice chunk of change just for using your debit card.
Greenlight, for example, offers up to 1% cash back** on every purchase with the Max and Infinity plans.
FAQs
Is it better to have a savings or checking account?
It’s really best to have both! A checking account is great for daily expenses and a savings account helps your money grow.
Do checking accounts earn interest?
Most checking accounts offer little, if any, interest. Although some may offer rewards, it’s best to have a dedicated savings account to accumulate interest over time.
Do savings accounts come with a debit card?
Most savings accounts do not come with a debit card, although some may have an ATM card that allows you to withdraw cash at a bank. Generally, savings accounts are designed for saving money over frequent spending.
Teach smart saving habits. From rounding up purchases to setting savings goals — Greenlight's award-winning money app helps families save. Try Greenlight, one month, risk-free.†
*Greenlight Core families can earn 2% per annum, Greenlight Max families can earn 3% per annum, and Greenlight Infinity families can earn 5% per annum on an average daily savings balance of up to $5,000 per family. To qualify, the Primary Account must be in Good Standing and have a verified ACH funding account. See Greenlight Terms of Service for details. Subject to change at any time.
**Greenlight Max and Infinity families can earn 1% cash back on spending monthly. To qualify, the Primary Account must be in Good Standing and have a verified ACH funding account. See Greenlight Terms of Service for details. Subject to change at any time.
†Valid for new customers only. Subject to identity verification and minimum load requirements. Your first monthly fee will be billed to your parent wallet seven days after successful registration. To receive a refund of your first monthly fee, you must request to close your account on or before the day immediately preceding your first Monthly Billing Date. See the ‘Account’ tab of Settings by tapping the gear icon on the Greenlight app home page to confirm when your risk-free trial ends. See Terms for details.
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