Checking vs. Savings Accounts: What’s the Difference?

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by Steve Muchoki · 8 min read
Checking vs. Savings Accounts: What’s the Difference?
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Check our guide on the difference between Checking and savings accounts offered by the traditional financial institutions, their usage and applicable fees.

The banking system is the backbone of the modern-day financial ecosystem. The industry handles cash, credit and also other forms of financial transactions. To keep afloat, the banks charge a small fee in transactions, saving money in personal accounts and also in collecting interest from loans. For a long period, banks have been providing a safe place for investors and the public to store extra cash and credit through either a savings account or checking account.

For purposes of understanding, we shall refer to the United States banking system which has grown and developed to be among the leading banking systems in the world. Although the dynamism of the banking ecosystem is greatly evolving due to the technology, we will focus on the fiat banking system that has not been diluted by the crypto technology which is taking over the traditional banking system (topic for another day).

The banking system has gained trust among many due to the security it guarantees its customers. For example in the United States of America, the Federal Deposit Insurance Corporation insures the checking, and savings accounts with a limit of $250,000 per account and up to $500,000 per joint account.

Although we come along savings and checking accounts frequently, mostly we are not keen to note the difference and may end up mixing our financial accountability. Understanding the two types of accounts will deliver you from financial hurdles that you experience daily.

Without much to add, let us delve deeper into checking and savings account offered by the banks to their customers. Having an open mind will greatly assist you in understanding the concept with much ease.

What is a Checking Account?

A checking account is an account that is held by a financial institution and allows the user to deposit and withdraw money at will. This kind of account is most popular with people who enjoy paying bills using their debit cards regularly. A checking account can offer either a debit card or checkbook capabilities.

However, money put in a checking account might be difficult to save and at the same time spend it. This is because the basic psychology of money dictates that it is much easier to save money that is not readily accessible than that which can be accessed by a click of the ATM.

It is therefore recommended to use a checking account on the money planned for daily spending only. This will help you stay on top of your finances no matter the amount of income.

Planning on your every penny is the first thing to attaining some degree of financial freedom that most people do not enjoy due to lack of discipline.

It is also an advantage holding a checking account as it will significantly be of help during times of travel when you do not need to carry all the money you have in your bag or pocket. The security that comes with using a trusted institution cannot be ignored bearing in mind the level of insecurity around the streets.

Before opening a checking account, it is advised to do proper background research concerning the underlying fees and security of your money. This is because a debit card that you end up using regularly will be exposed to a lot of risks. Including hackers who steal Fullz and sell them on the darknet market for cybercriminals to exploit.

A checking account with high transaction fees will milk your money slowly without your conscience. It is therefore recommended to understand the services offered by your financial institution to avoid ending up with several bank accounts that you hardly use.

A checking account can be made in such a way that, a group of trusted people like a family can use to pay for their regular bills. Although personal, a checking account can help to track family spending habits and manage the monthly expected bills based on the previous statements.

Using a debit card with your checking account, it will help you access the account balance and also for swiping or even online payments. A checking account can be used in automatic electric payments, mostly applicable when for example you need to pay for monthly mortgage premiums and also insurance premiums to avoid the need to manually pay bills.

Checking account comes with a number of fees like monthly maintenance charges, overdraft charges, and also insufficient funds fees. Some banks go-ahead to charge your checking account ATM for using some ATMs.

What is a Savings Account?

A savings account is a deposit that is created by a financial institution for holding users funds that are not meant for paying or covering regular bills. A savings account helps individuals grow financially as it mostly applies in funds meant for emergency times or achieve a certain goal. Putting aside some money for future use can help you plan for a vacation, buying an asset like home, a personal car or even pay for your education fees.

This type of account can be opened by any bank either operating traditionally or through online services. Banks mostly thrive in people opening such accounts as they end up lending the same money through loans and charging higher interest rates.

Most financial institutions pay yearly incentives to savings account holders as a motivation to help them cultivate a saving culture. The interest paid is called the annual percentage yield (APY) and depends on several factors.

First, it depends on the interest rate set by the central banks to financial institutions. Secondly, the APY differs from one financial institution to another. However, as the interest rate offered by central banks continue depreciating and heading to the negative value, the saving account holders will end up receiving a smaller interest earned through savings.

To counter the depreciating economy, investors are getting wiser on the matter by either going direct and buying treasury bonds or having an online savings account that pays more than the conventional traditional banks.

To get the perspectives, in 2020, the average US bank paid out 0.09% to savings account holders. It is a very small figure compared to the percentage banks charge to lend a loan. If for example, you saved $1000 per month, at the end of twelve months period, your total amount will be the sum of each monthly savings plus 0.09% of the total funds approximately $90. Therefore you will have $1090 in your savings account.

However, there are other charges associated with savings through the traditional bank system. They include monthly maintenance fees or even a minimum balance fee allotted to a savings account and they differ from one financial institution to another.

The banks also limit the number of withdrawals per month to six. If by any chance you exceed that limit, some banks reserve the right to convert the savings account to a checking account or even close it.

Alternatively, if you need to earn more through your savings, there are higher return investments that can earn you better interest at the end of the savings. If you are well informed about the current financial advancement like ICO, IPO, or IEO, they have a better return-investment ratio that has made people wealthier. However, they are very risky as the regulations around the crypto space is not yet evolved to cover most fields.

Otherwise, a savings account can work if you do not want to take risks and chances with your savings.

The Difference Between Checking and Savings Accounts

By now, you must be having a pretty good idea of what the two accounts entail. To clear the distinction between the two, let us delve deeper into the details that differentiate them. Each account has its fees, interest rates, and even restrictions. It is important to understand what each account has to offer to see if it suits your needs accordingly.

The table below outlines the difference:

Checking AccountSavings Account
Withdrawal limit and restrictionsNone at allLimited to six withdrawals maximum per month, and are limited to a certain amount of the total balance
Minimum balanceDepends on the bankDepends on the bank
Applicable feesDepends on the bankDepends on the bank
Interest earnedNone and if otherwise, it earns very littleIt earns interest however it varies from one bank to another
Access timeCan be accessed any timeTo access and use the money, the holder must transfer the money to a checking account
Debit cardMostly comes with oneTypically, it does not come with a debit card
Bill paySeveral transactions including online payment, automatic bill pay are possibleSuch transactions are not possible with a savings account


Having gone through both checking and savings account in detail, it is clear that both accounts are important and applicable differently. Therefore, holding both accounts is highly recommended to stay on top of your financial bills.

One advantage you have is the ability to open both accounts from different financial institutions. This will help you get the best and cheapest services in the market. However, if you feel you got the discipline to manage your bills well, having one cheap account will greatly reduce expenses involved in running different accounts.

A question on which account is better can be referred to the initial need of the account since both accounts are used differently.

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