Checking vs. Savings Accounts

Point of Interest

Although they are similar, there are significant differences between checking account and savings account as they serve different purposes. The main difference being that a checking account is typically where you want to keep the money you plan on spending now and a savings account is where you want to keep the money you plan on saving for later.

Opening an account is usually the first step into the world of the independent financial journey. The two most common types of accounts are checking and savings. While they have similarities, there are important differences between checking and savings accounts. To fully leverage their benefits, it is necessary to understand several key differences between checking and savings accounts that will help you manage your finances better.

Checking vs. savings account

A checking account is an account that you open at a financial institution such as a bank, credit union or online bank where you keep your money that you intend to use for daily transactions. For example, this is a place where you will keep the money necessary to pay for your regular monthly spending such as buying food, paying bills and rent. These funds are readily accessible as you can deposit and withdraw money from checking account whenever needed. It usually comes with a debit card or a checkbook. But as much as it’s very convenient to have easy, hassle-free access to money, it is precisely this feature that is the main disadvantage — as the funds are easily accessible, it means it is easy to spend them.

For this reason, it is useful to open another type of account, savings account, where you will earmark funds that you want to refrain from spending. Savings accounts are also limited to six transactions a month, per the FDIC. However, savings accounts typically come with an annual percentage yield, which will allow you to earn dividends on the balance within the account.

What is a checking account?

Checking accounts are where you keep the money you intend to spend soon, so it needs to be easily accessible. Because of this, you are allowed to deposit and withdraw from that account as you wish. As you can withdraw your money from your checking account at your free will, these funds have low reliability for a bank and, as such, do not typically offer interest on the money. Not only that, but the bank where you open the account will often charge a small fee for managing this account.

Debit cards are increasingly popular with consumers, especially younger ones. A recent study by Deloitte reported that 52% of Gen Z and 41% of millennials prefer to use debit cards most as they want to avoid credit card debt. While debit cards are generally better when you want to curb your spending and limit your debt, it is worth keeping in mind that they usually don’t offer cashback rewards as credit cards do. They also have fewer protections than credit cards in case of fraud.


  • Direct deposit into account
  • Daily transactions via debit card
  •  Access to ATMs for withdrawal


  • No APY on account
  • Harder to save money
  • Fees may apply

How to open a checking account

  1. Choose a financial institution that you will open your checking account at.
  2. Go online, call or visit a branch with your personal information to apply. You will typically need your Social Security number, email address, phone number, home address and government ID.
  3. Once approved, deposit funds into your new checking account and wait for your debit card to be shipped to you. 

What is a savings account

To separate funds you intend to save and grow for whatever reasons you want — a dream vacation, significant event, for rainy days or emergencies — it is wise to keep these funds at a separate account, called savings account. This is an account that you also open at a financial institution. Still, because this type of account serves a different purpose — to save the money rather than spend it — it is structured differently. 

APY is one of the most important metrics to look at when deciding where to open a savings account because it tells you how much interest you’ll earn over a period. What is special about APY is that it is the basis for compounding, which makes your funds grow at an accelerated speed as time goes by. Compound interest means that interest that you earn over one period will be added to the principal amount (initial money you deposited). To ensure that you get the best deal when it comes to APY, make sure to shop around as these rates may vary. However, as a rule of thumb, online banks tend to offer higher rates than traditional banks because they have lower costs and they can afford to reward depositors with higher rates.

Also, another thing to look out for is fees. Although savings accounts are cheaper to run than checking accounts, make sure to fully understand fees and make an informed decision before committing funds to a particular financial institution. 


  • Higher interest rates
  • Harder to access funds
  • Can link to checking account


  • Limited monthly transactions
  • No debit card access
  • Minimum balance requirement may apply

How to open a savings account

  1. Select a financial institution to apply for a savings account. 
  2. Gather documents and information necessary to open a savings account: government-issued ID, Social Security number, date of birth, bank account number, addresses and email address.
  3. Once the account is opened, deposit funds into your savings account. 
  4. Link it to a checking account to easily transfer money into your savings.

Opening both accounts at the same bank

It is possible to open both accounts at the same bank. This will have both advantages and disadvantages and you should decide based on your circumstances.

Having both accounts at one place can help streamline your financial matters and keep an eye on your finances. Banks often offer special deals to customers who open both accounts. For example, you may open a free checking account if you already have savings account with a bank or there’s a higher interest rate on your savings if you have a checking account.

At the same time, having both accounts at one place can make it easier for you to access the funds from your savings account more quickly, which may make it easier for you to succumb to frivolous purchases and tempt you into using the money you earmarked for saving and not spending.