Checking Account vs. Savings Account
Checking accounts are designed for everyday expenses while savings accounts can be a place to store and grow your money. Let’s look at what both types of bank accounts offer.
What is a checking account?
A checking account is a bank account where you can access your funds for everyday expenses. With a checking account, you can manage daily transactions like rent and utility bill payments. You can typically make purchases with the money in your checking account using your debit card and by writing checks. It can also be a place to deposit checks.
Pros and cons
With checking accounts, funds are typically available for withdrawals and transfers. They can be a convenient place to deposit your paycheck and handle daily, weekly and monthly expenses. Some checking accounts allow for unlimited transactions without fees. Some accounts also have no monthly maintenance fees, though it depends on your bank and which account type you have.
Keep in mind that checking accounts typically don’t earn interest, so they might not be the best place to grow your savings.
What is a savings account?
A savings account is a bank account that lets you earn some interest on your money. The interest rate can be variable. Certain types of savings accounts, such as high-yield savings accounts, may offer higher rates than traditional savings accounts. There may be limits on the number of transfers or withdrawals. Savings accounts can be a great place to store your emergency funds. They may also be a good place to save for short-term goals like saving for a vacation or a new car.
Differences between checking and savings accounts
One benefit of having a savings account is earning interest on your money, though interest rates for traditional savings accounts may be lower than other accounts, like certificates of deposit (CDs). This can also be a convenient place to accumulate your money, which is ideal for building an emergency fund. Your bank may also limit the number of transfers and withdrawals you can perform per month.
| Feature | Checking account | Savings account |
|---|---|---|
| Access and usage | Unlimited transactions for everyday spending | May limit transfers and withdrawals |
| Interest rates | Typically low or no interest | Earns some interest |
| Fees and charges | Potential fees for overdrafts, insufficient funds or monthly maintenance | Potential fees for overdrafts, insufficient funds, exceeding transaction limits or monthly maintenance |
| Often best for | Daily spending, bill payments and frequent transactions | Saving for short-term goals, keeping an emergency fund |
Choosing between a checking and savings account
When you’re debating between opening a checking account or a savings account, the first thing to consider is your short and long-term financial goals. While a checking account is ideal for managing your finances daily, a savings account is better suited for those looking to earn more on the money you don’t immediately need in the longer term. If you need an account for daily transactions, a checking account might be the better option.
Is it a good idea to have both a checking and savings account?
Having both a checking and a savings account can be beneficial, since they serve different purposes. Typically checking accounts don’t let you earn interest on your money. By adding a savings account, you can earn interest on your money. If you can have both, it can be a good idea.
How to use both accounts for financial management
To use the benefits of both checking and savings accounts, consider:
- Link your accounts: Most banks allow you to link your checking and savings accounts online. This means you can easily transfer money from one bank account to another, especially if your bank offers online banking or a mobile app.
- Use direct deposit and automatic transfers: Employers may allow you to get paid via direct deposit. You may be able to split your paycheck between checking and savings accounts. Your bank may also allow for automatic transfers, so you can move money from your checking account to your savings account regularly.
Disclosure: This article is for general educational purposes. It is not intended to provide financial advice. It also is not intended to completely describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products.
