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Checking vs. Savings Account: What's the Difference?

Once upon a time people wouldn’t have thought you were crazy if you stashed your cash under the mattress or maybe even stored your extra jingle in the freezer. But nowadays, just about everyone keeps their money in a bank or credit union. And when you choose the right bank, not only is your money safer than under the mattress, but depending on the type of bank account you open, you can also earn interest and grow your bottom line. Win-win!

There are two main types of bank accounts: checking accounts and savings accounts. But when you’re comparing the two, what’s the difference? Let’s take a look at checking vs. savings accounts so you can start blasting through all your money goals.

What Are Checking and Savings Accounts?

When you look at a checking vs. savings account, you’re really comparing an account for spending and an account for saving. Super simple, right? Here’s how checking accounts and savings accounts work.

Checking Accounts

Think of a checking account as home base for your money. It’s where money comes in, but more often than that, it’s where money goes out. Your checking account is a great tool for life’s everyday transactions.

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To open a checking account, you need to make an initial deposit. Do your research here. Some banks may require a minimum initial deposit or charge you a monthly fee if your balance dips below a certain dollar amount.

When you open a checking account, you’ll receive a debit card. (You might even still get a set of paper checks! Remember those?) Your debit card acts just like cash. When you use it at the grocery store, the gas station—wherever—the amount is automatically deducted from your balance.

And your checking account is also a great place to set up direct deposit for your paycheck and automatic bill pay. Now you can get your money faster and eliminate the stress of trying to keep up with what bills are due when. Plus, most banks offer online banking, so you can keep tabs on your account through a secure website or app on your smartphone.

The best part about a checking account? It makes budgeting a breeze. You’ve got money goals, and you need a plan to meet them. That’s where your budget comes in. Your budget lets you tell every single one of your dollars where to go before the month begins. And when you set up your monthly budget in the EveryDollar app, you can link it directly to your checking account. Then every time money comes in or out, you can track it right back to your budget. Cha-ching! (Literally.)

Pros: Checking accounts are simple to set up and use. They make budgeting and bill pay easier than ever! And it’s safer to keep your money in a checking account than to carry around all your cash.

Cons: Checking accounts can be full of hidden fees. Avoid any bank that charges a monthly maintenance fee or a fee to maintain a certain balance. And definitely say no when they offer overdraft protection. You could end up paying a monthly maintenance fee to “protect” you if you overdraw your account. Then you could be hit with fees if the bank has to move money from one account to another to bring your balance out of the red.

Savings Accounts

If a checking account is mostly about spending money, then a savings account is, you guessed it, all about saving money. A savings account is a place to store money and earn a little interest while you do.

Like a checking account, opening a savings account is easy to do. In fact, if you’re setting up a checking account, it’s the perfect time to open a savings account too. When you link them together, it makes it easier than ever to build that savings muscle by transferring money from your checking to your savings. (Bonus points if you ask your employer to automatically deposit a portion of your paycheck directly into your savings account. But be sure to review this often so you don’t miss the chance to increase that amount.)

A savings account is a great place to keep money that you don’t need immediately but want to have access to when you do—say, for instance, your $1,000 emergency fund or a sinking fund set up to save for an upcoming expense. If this money is in a savings account instead of a checking account, you can’t accidentally spend funds meant for future car repairs or Christmas.

Plus, with a savings account, you can earn interest just by letting your money sit there. Average interest rates for savings accounts are microscopic. Like less than one-tenth of a percent. So while a savings account shouldn’t be the primary driver behind your long-term wealth strategy, it is a nearly risk-free place to stash extra cash. When you choose a bank insured by the Federal Deposit Insurance Corporation (FDIC), your money is backed up to $250,000.

Pros: A savings account is a great place to keep money you don’t want to spend while also earning interest.

Cons: Like a checking account, a savings account can include fees if you’re not careful. Watch out for banks that charge a fee if your balance drops below a certain dollar amount. And while the FDIC recently lifted its six withdrawal per month limit, you should check with your bank to confirm their policy so you’re not on the hook for a fee if you go over the limit.

Checking vs. Savings: Which Is Right for You?

The short answer is: Both! With a checking account and a savings account in place, you’ve got a solid foundation to start crushing your money goals. A checking account is a safe, hassle-free alternative to cash that allows you to take care of all your basic transactions while staying on budget.

And a savings account is like the jelly to your checking account peanut butter. When you pair them together, you get an awesome combination. Use your savings account to keep money you don’t want to spend away from your everyday spending money. Transfer money from your checking to your savings to build toward your three- to six-month emergency fund, your next vacation or that set of tires you know you’re going to need. Plus, earn interest on your savings. 

The Best Bank for Your Money

You work hard for your money. So don’t leave it in the hands of a bank that sees you as just a nameless, faceless account number. You deserve better. That’s why we’re building Gazelle, a new banking experience from Ramsey Solutions! We’re ready to help you outrun the normal, debt-driven banking experience so you can win with your money, not lose it in stupid bank fees. If you’d like to become one of the first beta users, sign up today!

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.

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