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

When you’re looking for a bank account, you might be wondering what the difference is between a checking and savings account. At financial institutions, such as banks and credit unions, you can open both types of account, and you might find a place for both in your financial plan. Read on for a dive into the distinctions and uses for each type of account, and how they can work together.

What is a checking account?

Checking accounts are typically used for everyday spending. Many people have their paychecks deposited directly into their checking accounts and pay their bills with the money in that account. If you’re using a debit card, or withdrawing cash from an ATM, chances are you’re accessing a checking account.

When they first emerged, checking accounts offered customers the opportunity to buy things with paper checks instead of cash. Paper checks are becoming much less common, of course, largely replaced by debit cards and online or mobile banking.

Different financial institutions will have different requirements, features, and fees. Some don’t charge fees or waive them under certain circumstances. But other checking accounts may come with fees for things like account maintenance, using ATMs, or getting paper statements. You might also encounter checking accounts that require you to maintain a minimum balance to avoid fees. There’s also a wide variety of features to choose from; many financial institutions include online banking or a mobile app with a checking account, and some have features for budgeting built right in.

What is a savings account?

While checking accounts are usually for day-to-day spending, most people use savings accounts to set money aside, typically for medium-term goals. People commonly use them for emergency funds, rainy day funds, and other savings goals. 

When you want to save up, keeping money in a checking account vs. a savings account might make it harder to resist the temptation to spend what you’ve set aside. Keeping savings in a separate account can help because many savings accounts don’t come with a debit card, and most allow you to make only six withdrawls each month. 

It’s common for savings accounts to accrue interest, typically at fairly low rates. Keep in mind that any interest you receive could be subject to taxes. Like checking accounts, savings accounts may come with fees and minimum balance requirements, plus various features, depending on the financial institution. Keeping your money in a savings account can be a great way to keep it liquid, or quickly and easily accessible, which is one reason you might want to keep your emergency savings in this type of account. However, it may not be the best place for retirement savings or your entire nest egg. For one thing, the interest rate may not keep up with inflation, so the value of your account can be whittled away over long periods of time.

Checking account vs. savings account: What’s the difference?

Checking accounts and savings accounts have a lot in common. Both hold your money and keep it readily accessible. Neither is likely to earn substantial interest, and neither is especially risky. At financial institutions backed by the Federal Deposit Insurance Corporation (FDIC), the FDIC insures checking and savings accounts up to $250,000.

The main difference between these accounts is in the way you use them. If you want an account for everyday spending, you probably want a checking account (vs. a savings account, which is for setting money aside). But if your intention is to tuck aside money for a specific goal in the relatively near future, a savings account might be what you’re looking for. In a nutshell, a checking account is for short-term spending and a savings account is for medium-term saving.

Do I need a checking account or a savings account?

Fortunately, it doesn’t have to be checking account vs. savings account only; most people have both. Using them together can make budgeting and saving easier. For example, if you have a budget, you can compare your expected expenses to your checking account balance. If you have more than you need in your checking account, you can move the surplus to a savings account and earn some interest. 

You can also move money from checking to savings regularly to build your emergency fund and rainy day fund. Consider setting up a schedule in your budget to remind you. When an emergency pops up, you can rest easier knowing you can tap into your savings instead of relying on credit.

Plus, at many financial institutions, it’s possible to have multiple savings accounts earmarked for different savings goals, which can make it easier to keep your money organized and avoid accidentally spending your savings.

At the end of the day, the difference between a checking and savings account comes down to how you use them, and the right choice for you depends on how you plan to manage your money.

What about investment accounts?

For long-term financial targets or more significant goals like retirement, you might also want to make an investment account part of your financial plan. Investing even small amounts, over time, has the potential to add up to a larger return than keeping  your money in a checking or savings account. You can check out the Stash investment calculator to see just how much your investments could increase through compounding. Remember, though, that investments can be riskier than putting your money in a checking or savings accounts, and you can always lose money in the market. If you’re already a Stash customer, you can put your investments on autopilot with Auto-Stash. When you invest, follow the Stash Way® by investing regularly in a diversified portfolio.

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