Checking Account vs. Savings Account: What’s the Difference?

What Is a Checking Account?

A checking account is a bank or credit union account that allows the account holder to receive deposits and make payments. Checking accounts are sometimes referred to as transaction accounts because that's what they do best. Here is a quick rundown of things you can do with a checking account:

• Pay in-store or online with a debit card
• Withdraw cash from an ATM
• Pay bills online or using an app
• Set up automatic payments
• Connect to a peer-to-peer payment app like Venmo or Cash App
• Transfer money to other bank accounts
• Write checks

Checking accounts are easy to monitor using a banking app or your bank's website. Many checking accounts allow you to set up transaction alerts that help you keep an eye on monthly spending and payments, and monitor transactions against fraud.

What Is a Savings Account?

A savings account is a safe place to accumulate money for future use. Savings accounts earn interest, which helps grow your money as you build up an emergency fund or save toward goals like putting a down payment on a car. Savings accounts sometimes limit the number of withdrawals or transfers you can make in a month without incurring fees, but that's in keeping with the purpose of savings: This is primarily a place to save, not spend, your money.

High-yield savings accounts function much like regular savings accounts, but offer much higher interest rate yields. Around the time of this writing, top-paying high-yield savings accounts have annual percentage yields (APYs) of 4% to 5%, while regular savings accounts average less than 1%.

Learn more: How to Choose a High-Yield Savings Account

What's the Difference Between Checking and Savings Accounts?

The primary difference between these accounts is that checking is for transactions and savings is for—well, savings. Though there's overlap in the way these account types function, each one is better at doing its own thing. Checking accounts provide a convenient, secure way to make purchases, pay bills, send money and manage your day-to-day finances. Savings accounts are a great place to stash money and earn interest.

Do You Need Both Savings and Checking?

You aren't required to keep both a savings and a checking account, but having both can make it easier to manage your money. Savings and checking accounts complement each other. If you choose your accounts wisely, you'll get payment flexibility and powerful digital money management tools to keep your checking account operating smoothly, and a competitive return on your savings to help maximize the dollars you keep in reserve.

How Much Money Should You Keep in Your Checking Account?

Consider these three basic rules for keeping your checking account fully funded:

• Cover your expenses. Use your budget to determine how much money flows into and out of your account every month, then make sure your deposits are at least equal to your spending and payments.
• Maintain your minimum balance. If your account has a minimum balance requirement (or an average minimum daily balance), make sure your balance doesn't dip below the required level to avoid paying fees.
• Consider a cushion. Save yourself the trouble and expense of going into overdraft (and incurring overdraft fees) when you spend more than anticipated or have a hiccup with your direct deposit. Keeping an extra month's worth of expenses in your checking account as a cushion is safe, but even an extra few hundred dollars is helpful.

How Much Money Should You Keep in Your Savings Account?

Basic savings can include an emergency fund and sinking funds which you designate to help save toward long- and short-term goals:

• Emergency savings: Experts recommend keeping at least three to six months' worth of necessary expenses in an emergency savings fund.
• Sinking funds: You may also want to use your savings account as a sinking fund to save toward specific goals. Major goals include saving toward a down payment on a home or car; minor goals might include saving for a vacation, holiday gifts, furniture or luxury items.

Tip: If you have ample savings set aside in your savings account(s), consider branching out. You may want to contribute more to tax-advantaged retirement accounts, college savings plans or health savings accounts. Or, this may be a good time to learn how to invest.

Learn more: Signs You're Keeping Too Much in Savings

What Do You Need to Open a Checking or Savings Account?

Plan to provide some basic documents to verify your identity and get your accounts set up, whether you're opening a checking or a savings account. Here's what you'll need:

• Social Security number or taxpayer identification number
• Current government-issued identification, such as a driver's license, passport, military identification card or state identification card
• Proof of address such as a utility or other bill showing your home mailing address
• Date of birth
• Contact information

Frequently Asked Questions

The Bottom Line

Checking and savings are both essential accounts that, together, help you keep your finances on track. A checking account helps you manage income and expenses. A savings account keeps some of your money safely set aside, where it can earn interest and grow.

If opening checking and savings accounts is part of a larger effort to stay on top of your finances, you can double-check your progress by checking your credit report regularly. Your credit report shows your active loan and credit accounts, as well as your payment history on those accounts. You'll get an overview of how you're managing credit as part of your overall financial health.