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When you’re trying to decide whether to open a checking or savings account, it pays to compare the two. Both types of accounts have benefits. The key is figuring out which account type is best for your current financial goals.
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Checking vs. Savings Accounts: How Are They Similar?
Checking and savings accounts share some features:
- They are widely available. You can find checking and savings accounts at banks (online and traditional brick-and-mortar banks) and credit unions.
- They may have no monthly maintenance fee. There are plenty of fee-friendy checking and savings accounts. These accounts, sometimes called no-fee checking or no-fee savings accounts, don’t charge a monthly maintenance fee and may keep other fees to a minimum.
- They may have low minimum balance requirements. With so much competition for your business, it’s not difficult to find banks and credit unions with minimum balance requirements that make sense for your finances.
- They are insured. Generally, savings and checking accounts are insured—by the Federal Deposit Insurance Corporation (FDIC) at banks or National Credit Union Administration (NCUA) at credit unions—up to $250,000 per depositor, per insured bank or credit union, for each ownership category.
Checking vs. Savings Accounts: How Are They Different?
While both checking and savings accounts can help you organize your finances, they have differences. These differences make checking accounts better for everyday spending and savings accounts better suited to saving for short- and long-term goals.
| Checking vs. Savings Accounts | ||||
|---|---|---|---|---|
| Checking Accounts | Savings Accounts | |||
| Pays interest? | Sometimes. | Yes. | ||
| Debit card access? | Yes. | Sometimes, but subject to withdrawal limits. | ||
| Withdrawal limits? | No. | Yes. Usually 6 per month (not including ATM or in-branch withdrawals). | ||
In the comparison above, you can see how checking accounts are the better choice for daily financial tasks since they offer debit card access and have no limit on withdrawals. Because of their withdrawal limits and interest earnings, savings accounts are a better fit for the money you’re saving for financial goals.
Do Checking and Savings Accounts Earn Different Interest Rates?
While both checking and savings accounts may pay interest, checking accounts typically pay far less interest than savings accounts. According to the FDIC, the average rate on an interest checking account is 0.08% and the average rate on a savings account is 0.46% as of April 15, 2024.
It’s important to keep in mind that many checking accounts don’t pay interest. Those that do may have specific monthly requirements you must meet to earn interest. If interest-bearing checking is important to you, you might consider exploring high-yield checking or money market accounts.
Can Interest Rates on Checking and Savings Accounts Change?
The interest rate on checking and savings accounts are variable, which means they can fluctuate higher or lower than the rate offered when you open your account. When the Federal Reserve raises interest rates, your interest rate will likely increase—eventually. You’ll probably see your yield drop if the Fed lowers interest rates.
When Is a Savings Account the Better Choice?
There’s one standout reason to choose a savings account: earning interest.
If your goal is to build your savings, savings accounts are often far better places to keep your money than checking. A savings account is the ideal place for money you don’t need to spend right now but can’t afford to lose. This makes them good places to keep things like your emergency fund and down payment on a house.
With a savings account, you also get to enjoy the benefits of compound interest, a perk you won’t get with a non-interest-bearing checking account. Once the money you deposit starts earning interest, your account balance will grow. Then you’ll be earning interest on your interest—that’s compound interest.
How Do I Find the Best Savings Account?
When looking for the best savings account, consider more than APY. Search for an account that fits your goals and banking habits. Be sure to compare accounts at various banks (online and traditional brick-and-mortar) and credit unions.
Also, before opening a savings account, be sure to verify monthly withdrawal limits. On April 24, 2020, the Federal Reserve Board announced changes to Regulation D. This rule required savings deposits to be limited to six “convenient transfers and withdrawals” per month. While the Federal Reserve no longer enforces this limit, banks and credit unions may still have transaction limits on savings and money market accounts.
When Is a Checking Account the Better Choice?
If your goal is to use a bank account for daily transactions, a checking account is the better choice.
Most checking accounts come with a wide array of features designed to help you manage your money daily. Debit cards, for example, can make it easy to pay bills automatically each month by linking your debit card to autopay at your home utility provider. And you can also set up direct debit from your checking account for your credit card payment, mortgage and car loan.
Here are some common features that come with checking accounts:
- Debit cards
- Paper checks
- Direct deposit
- Online bill payment
- Mobile check deposit
- Overdraft protection (often linked to a savings account)
- Balance and transaction alerts to help protect against fraud
How Do I Find the Best Checking Account?
The best checking account for you is the one that aligns with your personal preferences and financial goals. But there are a few features that the best checking accounts have in common.
For example, the best checking accounts typically offer low fees and plenty of perks. If an account you’re considering has a monthly maintenance fee, make sure it provides a way to waive the fee. Also, look for accounts and banks or credit unions with an extensive ATM network and reimbursem*nt for third-party ATM fees. Overdraft protection and other features that help you manage your finances, like online bill pay and wire transfers, are helpful as well.
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Checking vs. Savings Account: Which One Should You Choose?
The best type of account is the one that fits your current financial goals and needs. Checking accounts can help you handle all of your daily spending and recurring bills, while savings accounts can help you build your savings, protect you from unexpected expenses and help meet your savings goals.
But you don’t have to choose between the two. It’s often beneficial to have a both a checking and savings account. Having multiple bank accounts can help with your daily and long-term finances.
