What Are the Differences Between Checking and Savings Accounts?

Quick Answer

A checking account helps you actively manage your income and expenses, and generally offers a range of convenient ways to pay. A savings account helps you set money aside as an emergency fund or to meet future goals like saving for a down payment on a car.

Shot of a young woman using a laptop in a cafe to check her checking and savings accounts.

Two types of bank accounts can help you manage your money effectively: checking and savings. Although checking and savings accounts share some of the same features, checking accounts are typically used for everyday spending and payments; savings accounts are for stashing money and earning interest while you save toward a future goal.

When you're setting up finances, you may want to establish both a checking and savings account. Here's what each of them does and how you might use them.

What Is a Checking Account?

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

You can use your banking app or bank's website to track your account balance and transactions, so you can stay up to date on your financial position. Many checking accounts also 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 typically earn interest, which can help grow your money as you build up an emergency fund or save toward goals like putting a down payment on a car. Savings accounts may 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.

In addition to regular savings, you may be able to find high-yield savings accounts that function much the same as regular savings but pay much higher interest. Interest rates for both types of savings accounts vary from bank to bank (or credit union), so be prepared to shop around for the best annual percentage yield (APY).

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Checking Accounts vs. Savings Accounts

Because checking and savings accounts serve two different functions, they work a little differently. Here's how checking and savings stack up, side by side:

Checking Accounts vs. Savings Accounts
Checking Accounts Savings Accounts
How it works Offers convenient ways to pay: debit, payment apps, digital wallets, online bill pay, ATMs and checks Pays interest on your balance, so your money grows while it's in your account
Transaction limits Unlimited withdrawals, payments and transfers

Withdrawals and transfers may be limited, or subject to fees, if you exceed a certain threshold

Purpose Manages your ongoing financial activity: deposits, bills, expenses and spending Encourages saving toward long- or short-term goals and emergencies by keeping your savings separate
Interest paid Often none, but some types of checking accounts do pay interest Rates vary based on type of savings account, your balance, your bank and current rates
Minimum balance requirements Often small, between $25 and $100 daily minimum balance requirements, but some accounts don't require a minimum balance Depends on the type of savings account and your bank. Some may be as low as $0 or $25; others may be as high as $1,000 or more
Minimum deposit Often small, between $25 and $100, but some accounts don't require a minimum deposit Depends on the type of savings account and your bank

Before you open an account (or now if your accounts are already open), read the fine print on your account agreement to understand the rules and any fees you may be charged. It may be worth shopping for an account with no or minimal bank fees: Even $5 a month can erase your interest earnings and start eating away at your account balance.

Do You Need Both Savings and Checking?

Savings and checking accounts complement each other. You aren't required to have both kinds of accounts, but together they can help you pay your bills, manage your money and work toward long-term financial goals. 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?

There are three main considerations when determining how much money to keep in your checking account:

  • Maintain enough to cover expenses. Use your budget to determine how much money flows into and out of your account every month, and make sure your deposits are at least equal to your spending and payments.
  • Stay above minimum balance requirements. 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 keeping a cushion. Keeping a bit of extra money in your checking account can help ensure that you maintain your minimum balance if you have one. It also serves as a backup if you spend more than anticipated. You'll save yourself the trouble and expense of going into overdraft, which generally results in overdraft fees. 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 better than nothing.

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

Whether you open accounts online or in a branch, you'll need to provide some basic documents to verify your identity and get your accounts set up.

  • 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

It Takes Two (Accounts)

Checking and savings are two essential accounts that team up to help keep your finances straight. A checking account helps you manage income and expenses—and make a wide variety of convenient payments. 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 also 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.