Checking vs. Savings Accounts: The Difference and How to Choose

Checking accounts are best for spending money. Savings accounts have higher interest rates, so they're best for stashing cash.

Margarette BurnetteJuly 17, 2020

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Checking vs. savings accounts

The difference between checking and savings accounts comes down to access to your money.

Checking accounts are better for everyday transactions such as purchases, bill payments and ATM withdrawals. They typically earn less interest — or none.

Savings accounts are better for storing money and earning interest, and because of that, you might have a monthly limit on what you can withdraw without paying a fee.

» Skip ahead to see three of NerdWallet's favorite savings accounts for earning more interest.

Checking accounts

The benefit: Checking accounts, which offer debit cards and checks, are made for spending money.

The downside: They tend to pay little or no interest, so you'll want to stash your reserves in a savings account.

The best checking accounts tend to have no monthly fees (or easy ways to waive them) and free access to nationwide ATM networks. Some even have sign-up bonuses.

Savings accounts

The benefit: Savings accounts typically have higher interest rates than checking, making it easy for you to grow your money faster.

Some financial institutions may limit your transfers and some withdrawals to only six times a month.

The downside: You can't transfer or withdraw money all the time. In fact, per previously federally enforced limits on savings withdrawals, you can take money out of savings accounts only six times a month via online banking, among other methods. Going over that limit can result in a fee or, if you do it multiple times, your bank might convert the account to checking. If you’re looking for a comparable option for savings, cash management accounts don’t have withdrawal limits. (Read more about savings withdrawal limits.)

The FDIC announced in April that it would no longer require financial institutions to enforce the limit of six withdrawals per month. However, you’ll need to check with your financial institution to know whether it’s lifted its limit, or if it might charge you fees for making more than six withdrawals in a month.

If you’re looking for a comparable option for savings, cash management accounts don’t have withdrawal limits. See some of NerdWallet's favorite cash management accounts.

» Ready to compare savings? See our best high-yield savings accounts list

How to choose the best checking and savings accounts

Look for accounts that earn high interest rates and have low service fees. If you pay a monthly service fee for a checking or savings account, you could lose money, so avoid maintenance charges if possible. There are many accounts that offer free checking and savings, and some of them also have competitive rates.

» Looking for accounts without monthly fees? Check out NerdWallet's best free checking accounts.

The value of high APYs for savings accounts

The average APY on interest checking accounts is 0.04% APY, while the average savings account APY is just 0.05%. However, some banks and credit unions have savings accounts that earn more than 20 times the average.

When you put your money in an account that earns above average interest, you can grow your balance faster over time, without extra effort.

Say you deposit $5,000 in an account that earns 0.10% APY. After a year, that money earns about $5. But if you deposit the cash in an account that earns 1.00% APY, you would have about $50 in the same period.

The best savings accounts have rates around 1.00% APY. Below are how three accounts with competitive interest compare.

A regular savings account isn’t your only option for earning more interest. If you don’t expect to withdraw your money for several months, or have a large amount to deposit — say, $10,000 or more — you could consider other savings options. Learn more about types of savings accounts here.

Certificates of deposit usually offer better rates, but require you to deposit your money for a specified amount of time. And unlike investments, earnings are guaranteed. See some of the best CD rates.

How much interest your savings could earn

Are savings and checking account interest rates fixed?

No, rates are variable, meaning they can change over time. Our roundup of best banks and credit unions for checking and savings shows accounts that have consistently high rates. If you would like a fixed-rate account that gives you flexibility to access your money, consider the benefits of a no-penalty CD.

Could I lose my money in a checking or savings account if the bank fails?

Deposit accounts at most banks and credit unions are federally insured up to $250,000 per depositor. If the account is with a bank, the funds would be insured by the Federal Deposit Insurance Corp., while credit unions are federally insured through the National Credit Union Administration. If a bank or credit union were to go out of business, you would not lose your deposit, up to the insured amount.

» Want to know more about how your funds are protected? Read how FDIC and NCUA insurance programs work

Checking and savings accounts at the same bank

The benefits: Having both accounts at the same bank or credit union can make it easy to manage your money and transfer between accounts typically within minutes. Some banks also waive monthly fees if you link checking and savings. We've also analyzed financial institutions for those with checking and savings accounts that rate well. See our roundup of best banks and credit unions for checking and savings.

Pairing them makes things simple and convenient, but you may not find the best checking and savings at the same bank.

The downside: You may not find the best checking and best savings accounts at the same place. For example, banks with some of the highest savings rates don't always offer checking.

If you're ready to maximize savings but don't want to change up your current accounts, consider opening a high-yield savings account at a different bank. Just make sure you have enough money in both banks to avoid fees.

See our monthly roundup of banks that are offering high savings rates right now.

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