Banking •

October 28, 2022

Checking vs. savings accounts: what's the difference and which one is right for you?

A bank account is a useful tool for managing your finances. This guide will provide tips on how to choose between a checking and savings account.

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A bank account allows you to make the most of your money. 

A bank account offers (on top of more financial security than keeping cash in your mattress) the ability to earn interest, make and receive payments through direct deposit, and automate payments.

The benefits of having a bank account are so clear that nearly 95% of Americans have one. 

But before you rush to a bank, be ready for the question: “do you want to open a checking or savings account?”

While the two types of bank accounts have common features, they also have important differences. 

Let’s review what checking and savings accounts are, the similarities and differences between both accounts, and some tips to help you choose the right bank account.

In this article, we'll cover the following:

  • What is a checking account?

  • Frequently asked questions (FAQs) about checking accounts

  • What is a savings account?

  • Frequently asked questions (FAQs) about savings accounts

  • Checking vs savings account: similarities and differences

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What is a checking account?

A checking account is a type of bank account that holds your money until you need to access it. 

The reason it’s called a ‘checking’ account is because account holders used to mainly use these accounts for writing checks. Over the years, banks have developed more ways to use funds from checking accounts, including debit cards, automatic teller machines (ATMs), and direct payments.

Features of Checking Account

Let’s review the ways that you can withdraw funds from a checking account.


A check is a signed document that tells a bank to pay a certain amount to a specific person or organization. If the field ‘pay to’ is left blank, then the check’s bearer can cash it. Checks are valid for 6 months from their date of issue unless they specifically say differently.

While a bank often offers you a couple of checks when you first open a checking account, it'll eventually start charging you a fee for more checkbooks.

Debit card

A debit card has a unique identification number connected to your checking account. This allows you to access funds in person or online. 

You can use a debit card at businesses with a card reader and pay for goods or services. Whether it’s a restaurant, clothing store, or any other place where you buy something, most businesses allow you to pay using a debit card.

Depending on your bank and card age, your card may have only a stripe on its back or both a stripe and a chip. If your debit card has a chip, it may also provide an option for contactless payment. A chip card with a contactless payment option allows you to pay by tapping your card near a payment terminal enabled with this technology.

Most US banks are trying to replace all cards with chip cards because they add an extra layer of security to your card.

On the internet, you can use your debit card to pay for just about anything you want to buy. 

Typically, you’ll need to provide your card’s number, date of expiration, and security code. Sometimes, you also need to provide the cardholder’s name, billing address, or zip code.

ATM withdrawal

A debit card allows you to take out money without visiting your bank’s offices. When you get your card, you or your bank will choose a personal identification number (PIN) attached to your card. 

The card’s PIN allows you to use the debit card at an automatic teller machine (ATM) within the bank’s network. You may use an out-of-network ATM, but you’ll need to pay a fee.

Some ATMs only allow you to take out money and check your account balance. Others take in checks and cash deposits and have additional features.

Direct payments

Your bank assigns a unique account number to your checking account. Together with the banks’ routing number, your account number enables you to make electronic payments and money transfers. 

This means you don’t have to go into the physical bank to do these tasks—you can do them online or from mobile apps.

You can get paychecks from your employer as a direct deposit into your checking account. You can also make direct payments to companies from your checking account or send money to other people’s bank accounts. 

Some banks allow you to schedule direct payments from an online portal connected with your checking account.

Frequently asked questions (FAQs) about checking accounts

Let’s take a look at three commonly asked questions about checking accounts:

What are the types of checking accounts?

Common types of checking accounts are personal checking, joint checking, interest-bearing, and student checking accounts.

Personal checking account

A personal checking account belongs to one person.

Joint checking account

A joint checking account can have more than one owner. Each of the owners has full access to the account and can deposit and withdraw cash from it.

Interest-bearing checking account: 

An interest-bearing checking account pays you a certain amount of money based on the money you have saved in the account. 

The amount it pays you is based on a set percentage and is paid periodically (such as monthly or yearly). For example, a 0.30% interest-bearing checking account would pay you about $3 for every $1,000 held in the account [$1,000 x ($1,000 x 0.03) = $1,003].

Student checking account 

A student checking account is a bank account that offers basic services like a debit card and a checkbook. 

Designed for high school and college students, student checking accounts can be a good bank account for first-time users. Proof of valid student status is often a requirement.

Do checking accounts have fees?

Most checking accounts have fees. Before opening a checking account, ask about these potential fees:

  • Monthly account maintenance fees: This is a fee to keep your account open when your balance falls below a certain amount.

  • Paper statement fees: Some banks may charge you a fee when they send a paper statement via regular mail.

  • Overdraft fees: Some checking accounts allow for a transaction to go through even when you don’t have enough cash. Then, your account balance becomes negative, meaning you owe the bank money. The overdraft fee is the cost that the bank charges you for this service.

  • Insufficient funds fees: When you write a check for more than your account’s balance, then the check bounces, meaning whoever you gave the check to can’t cash or deposit it. This results in a non-sufficient funds (NSF) charge.

  • Non-network ATM fees: When you use an ATM out of your bank’s network, you’ll often have to pay a fee.

Your bank may have fees for other services, too, but these are the most common ones that you should ask about.

Can I avoid fees on checking accounts?

Yes, you can avoid checking account fees in many ways.

Some banks offer free checking accounts that truly are free as long as you meet certain requirements. 

For example, a student checking account stays free while you’re in college. Another example is a checking account that requires you to have a minimum account balance to avoid a monthly maintenance fee.

Besides banks, credit unions also offer checking accounts. As a non-profit financial institution, a credit union doesn't have profit as its main objective. Credit unions tend to charge much lower fees than banks and often have a free checking account option. 

Keep in mind that credit unions may have fewer services and limited resources (e.g., a small network of ATMs).

What is a savings account?

A savings account is a bank account that pays you interest for your deposits. 

On July 19, 2021, the average annual interest rate for a savings account was 0.06%, meaning that you would earn $.60 if you saved $1,000 for a year [$1,000 x ($1,000 x 0.0006) = $1,000.60]

Unlike a checking account, a savings account isn’t designed for everyday use. Banks limit how often you can withdraw money from savings accounts (usually 6 to 9 times per month). 

You can use a savings account to save money for a while until you need it. Common goals of savings accounts include saving for college, saving for a rainy day fund, big purchases, education expenses, and retirement.

What do American use savings accounts for?

Frequently asked questions (FAQs) about savings accounts

Let’s take a look at three common questions about a savings account:

What are the types of savings accounts?

The types of savings accounts include personal, joint, premium, money market, and student savings accounts.

Personal savings account

A personal savings account belongs to one person.

Joint savings accounts

A joint savings account has more than one owner. Each owner has full access to the account to deposit and withdraw cash from it.

Premium savings account

Some banks may increase the interest that you earn when you have more money in your account. 

For example, a bank may offer 0.10% for a balance under $5,000, 0.12% for a balance over $5,000, and 0.15% for a balance over $15,000.

Some banks are only online and don’t have a physical branch. Due to these cost savings, an online bank often offers a high yield savings account with a higher interest rate.

Money market savings account

A money market savings account is a type of premium savings account that has a higher interest rate. 

A money market savings account requires a higher minimum balance than basic savings accounts. A money market account may include a checkbook and debit card but still limits transactions like any savings account.

Student savings accounts.

To encourage an early start with savings, banks often have a student basics account. Proof of valid student status is often required.

Do savings accounts have fees?

Usually, savings accounts don’t have fees.

However, a bank may have some rules to follow to keep the savings account free:

  • Minimum balance requirement: You’ll need to have a minimum account balance.

  • Maximum number of withdrawals: Withdrawals are often limited to around 6 to 9 per month.

  • Minimum holding period: You’ll need to keep your funds in the savings account for a set period, such as 30 days.

Can I have both a checking account and a savings account?

Yes, and you can often connect them. 

Having a checking account for daily use and a savings account for setting aside money is a good plan. You’ll also be more likely to reach your savings goals if you automatically transfer a part of your checking account’s balance into your savings account every month. 

Checking vs. savings account: similarities and differences 

Checking and savings accounts are types of bank accounts that have some common features and key differences. Let’s compare a checking vs savings account.

What are the similarities between a checking and savings account?

Let’s consider four factors:

1. Both accounts are interest-bearing. All savings accounts earn interest, and some checking accounts can earn interest, too.

2. Both accounts allow withdrawals and deposits. Both types of accounts allow you to add and remove money from your account.

3. Both accounts allow you to make and receive direct transactions .Checking and savings accounts have a bank routing number and a unique account number. You can use these two numbers to receive and make direct payments directly from either type of account.

4. Both accounts are covered by FDIC insurance. The Federal Deposit Insurance Corporation (FDIC) is an agency that protects bank deposits in the US. The FDIC insures checking and savings accounts up to $250,000 in case the FDIC-insured bank were to fail.

What are the differences between checking and savings accounts?

Let’s look at three ways in which these types of accounts differ:

1. Savings accounts generate more interest .The interest rate of a savings account is typically higher than a checking account. As of July 19, 2021, the average US interest rate of a savings account (0.06%) was double that of an interest-bearing checking account (0.03%).

2. Checking accounts give you a debit card. Most checking accounts come with a debit card. Only one type of savings account (money market savings account) offers this service.

3. Checking accounts allow at-will withdrawals. Both types of bank accounts allow you to take out your money, but savings accounts limit the number of times you can do this per month. 

Most savings accounts set the limit to around 6 to 9 withdrawals per month. If you try to take out money more times than this, your bank may close the account or convert it to a checking account.

Some types of savings accounts may require you to leave your money in them for a set time to unlock a higher interest rate. 

Final thoughts

When choosing a bank account, it makes a difference if you choose a checking or savings account. Each type of bank account has features meant for specific purposes. 

If you’re a student, banks will often have special types of accounts just for you.

Before you sign up for a new bank account, read the terms and conditions carefully. Typically, there are ways to lower or even avoid the costs that come with a checking or savings account.

If you’d like to learn how to make the most of your finances and maximize your financial aid for college, contact Mos today. We’re here to help.

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