There are many decisions to make when you decide to open a new bank account, ranging from which financial institution to work with, to whether you want features like an intuitive mobile app. But perhaps the most important decision to begin with is whether you would like to open a checking account or a savings account. Here, we spell out the differences between a checking vs. savings account.
Checking accounts are intended for everyday use. Thereâ€™s generally no limit to how many times you can access your money through debit card purchases, withdrawals and transfers each month, but generally have a lower or zero interest rate.
Savings accounts, on the other hand, tend to have a higher interest rate and are intended for minimal access to your funds and instead, saving up for future goals or purchases. Savings accounts come with a federal law limit known as Regulation D, or Reg D, which allows up to six certain savings transfers or withdrawals each month. Many consumers find that having both a checking and savings account can be quite complementary.
Hereâ€™s a breakdown of the benefits and drawbacks of each type of account.
|Checking Accounts||Savings Accounts|
|Designed for regular spending, covering day-to-day expenses and monthly bills, depositing money and transferring money to or from other accounts||Designed for minimal access and earning interest on your deposits. Withdrawals are usually reserved for big purchases or payments|
|No limit*||A federal rule known as Reg D limits six transactions per month on certain transfers or withdrawals from your savings account|
|Rates average 0.19% APY as of Jan. 2019 but you can get much higher rates if you shop around. Online banks typically have higher rates.||Rates average 0.26% APY as of Jan. 2019 but you can get much higher if you shop around. Online banks typically have higher rates.|
|Minimum balance requirements|
|May require a minimum balance or incur a monthly maintenance fee. Most online banks offer checking accounts with little to no minimum balances.||This typically ranges from $100 minimum balance to around $2,500. Some accounts require a minimum balance as high as $10,000, or the APY will drop.|
|Convenient access; ATM/debit card; checks.||Interest rates are typically higher than those of a checking account, checks, debit card.|
|Monthly fees can typically range from $0 to $50; Overdraft; Some accounts will charge if you fall below a minimum balance, make too many transfers per month, withdrawal from third-party ATM machines; Debit card usage fees||Some accounts will charge if you fall below a minimum balance.|
|Most checking accounts are insured by the FDIC for up to $250,000 per account.||Most savings accounts are insured by the FDIC for up to $250,000 per account|
Checking accounts usually accrue little or no interest, depending on the bank, but are convenient for every day access to your funds.
|Ease of access. With ATM cards, online banking and mobile apps, checking accounts can authorize deposits and withdrawals as often as you need.
Insured by the FDIC. You can find comfort in knowing that most checking accounts are insured by the FDIC for up to $250,000 per account.
|Fees. Checking accounts can come with a number of fees, such as overdraft fees, ATM withdrawal fees from third-parties, fees for falling below a minimum balance and sometimes debit usage fees.
Lower interest. Checking accounts typically have zero or very little interest.
These are no fee checking accounts that also earn interest.
Savings accounts are used to hold money that you donâ€™t need right away and can earn interest over time, yet the funds are still easy to access if you need to make a big purchase or payment.
|Money can grow faster. Savings accounts generally provide higher interest rates than checking accounts, so you can earn more money over time.
FDIC Insured. Just like checking accounts, most savings accounts are also FDIC insured for up to $250,000 per account.
Good for short-term savings goals.
|Minimum balance. Savings accounts may have a minimum balance requirement. If the account falls below this requirement, the user is usually charged with a fee.
Withdrawal limitations. Due to a federal rule known as Reg D, youâ€™re limited to six transactions per month on certain transfers or withdrawals from your savings account.
These high-yield savings accounts consistently offer high rates.
Fees for checking and savings accounts can vary depending on the financial institution and type of account. Fees just to open a checking account can range from $0 to $50. Overdraft fees can range from about $24 to $34.