Checking vs. Savings Account: An In-Depth Comparison

Most banks provide their users with checking and savings accounts. While there are a lot of similarities between the two, there are also some key differences.

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Adam Moelis
Aug 3, 2022
8 min read

The FDIC estimates that only about 5.4 percent of American households (7.1 million) were unbanked in 2019. The other 124.2 million households had at least one member with an active checking or saving account. There are likely even fewer households that remain unbanked today. 

About Checking Accounts

If you’re one of the people that’s currently unbanked and looking to open an account, then you’ll have your choice from several financial institutions. JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup are among the biggest traditional banks in the United States. These banks are typically highly regarded and offer certain benefits to incentivize you to store your money with them. 

In addition to these traditional institutions, you can access online-only banking account options. These online banks are strictly digital (meaning there are no physical branches), but they offer up the same security and protection as a traditional bank. The key difference is that these online banks typically offer more incentives, including lower fees, higher interest rates, and more convenience. 

You’ll have to decide whether a traditional or online-only bank is the best for you. Before you do that, you should understand the basics of banking and how it works. Specifically, you should know the key differences between checking and savings accounts.

What Are Checking Accounts?

A checking account is a deposit account with a financial institution that permits the owner to make deposits and withdrawals. You would make deposits in the form of physical cash, paper checks, or electronically and the money would be safely stored in your account. 

You would then have the option to withdraw these funds by requesting cash from a teller or ATM, writing a check, using a debit card, creating a money order, or requesting a wire transfer.

What Are the Benefits of a Checking Account?

The key benefit of having a checking account is that your money remains liquid. That means that you’ll be able to access your money pretty much whenever you want and easily withdraw it. The downside to this benefit is that checking accounts rarely offer interest-based incentives.

Here is a list of the typical features that come with a checking account:

  • Debit card. These plastic payment cards can be used instead of cash to make purchases. The card functions like a credit card, except that money, will automatically be deducted from your checking account and sent to the appropriate vendor.  
  • Paper checks. Filling out a paper check creates a signed verification that the vendor can withdraw money from your account and transfer it into their account. You are considered the “payer” of the check and must write the name of the “payee,” the total amount being transferred, and sign on the signature line. 
  • Direct deposit. These are electronic transfers of funds that are made directly from the payer's account and into the payee's bank account. The vast majority of employers these days request their employees to establish direct deposit accounts so they can avoid writing out paper checks on paydays. 
  • ATM access. ATM stands for Automated Teller Machine and can be used to access your checking account. You’ll have the option to withdraw or deposit cash and other financial services. Unlike banks with operating hours, ATMs can run 24 hours a day, seven days a week, and 365 days of the year.
  • Overdraft protection. This optional service your bank provides ensures that your transaction is covered even if you don’t have sufficient funds in your checking account. The bank automatically transfers funds from a linked account (such as a savings account) to cover the withdrawal.

Types of Checking Accounts

Several types of checking accounts are available. Knowing the difference helps you determine which checking account is the best fit for you.

  • Traditional checking accounts. These are the most common type of checking accounts available. A traditional checking account will typically come with the benefits mentioned earlier and are readily available at most banks and credit unions. It’s very rare for these accounts to feature any interest payments. 
  • Premium checking accounts. These checking accounts are enhanced versions of traditional checking accounts. You might have to meet a few more requirements to open one, but they typically include additional benefits such as no fee safe deposit accounts, no fee checks, no fee money orders, and waiving out-of-network ATM fees. 
  • Interest-bearing checking accounts. Finding a checking account that pays interest is rare, and the requirements are much stricter. There are usually much higher account balance requirements, monthly service fees, and overdraft penalties attached to interest-bearing checking accounts. If you decide to open one, you’ll be able to earn interest based on the balance of your account. 
  • Rewards-based online checking accounts. These checking accounts allow you to earn points, cash back, or other rewards based on your debit card purchases. There are no physical branches, so all transactions must be made via debit card or online. You will still have access to all of the other benefits of a checking account and higher interest rates and other rewards.

What Are the Requirements to Open a Checking Account?

You will need to meet a few requirements to open a checking account. These requirements are standard procedure regardless of whether you apply for an online bank account or in person at a local branch. In general, here is what you’ll need to provide before you can open a checking account:

  • A valid photo ID issued by the government, such as a driver's license, passport, or state ID card.
  • Basic personal information such as your date of birth, phone number, and Social Security number or Taxpayer Identification Number.
  • An initial deposit must reach the minimum requirements. 
  • An account co-owner if you are under the age of 18.

What Are the Alternatives to a Checking Account?

Checking accounts are fairly basic and straightforward. There aren’t a ton of alternatives to them, but there are a few options, including:

  • Cash. Physical currency has been around for centuries and isn’t going away anytime soon. However, it’s not a wise decision to keep all of your money in cash form. Cash can be stolen, lost, or damaged, which makes it a very unsafe and inconvenient financial method.
  • Prepaid debit cards. These cards function like gift cards, except that you use them anywhere that accepts debit payments.

What Are Savings Accounts?

A savings account is a type of bank account that allows you to store your money for long periods safely. The idea of a savings account is to put money here that you don’t intend to spend any time soon. 

The bank will typically offer you interest as an incentive to keep your money deposited. Naturally, you’ll still be able to access this money if you need to withdraw or transfer some funds. 

But a savings account's typical intention is to hide money from yourself and save up for a later date.

What Are the Benefits of a Savings Account?

Depending on where you’re looking, there are a lot of savings account benefits. Even the most basic saving accounts typically include at least some interest or reward-based incentives for keeping your money deposited. 

In addition to these financial incentives, here are a few more benefits that come with having a savings account:

  • It’s easier to save. If you think of a checking account as your wallet, then a savings account would be the shoebox under your bed. You can still add and deduct money from your shoebox, but you won’t be able to spend it quite as easy when you’re out and about. 
  • There’s no risk. By definition, savings accounts don’t lose any money. There are plenty of other ways to invest your money that come with high rewards and high risks. A simple savings account will come with zero risk of you losing money.
  • The money is secure. The majority of bank accounts are federally insured for up to $250,000. Even in a robbery or the bank shutting down, your money will still be safe and secure. You can rest assured that your hard-earned money will always be available when needed.

Types of Savings Accounts

The best savings accounts are the ones that offer the highest interest rates, no monthly fees, and easy transfer options. You should check for any savings account that offers these benefits. These are a few of the most common types of savings accounts that are easy to open:

  • Traditional savings account. Most banks and financial institutions that offer to check accounts also offer savings accounts. These interest rates will usually come with fairly low-interest rates, but the ability to link your two accounts is an attractive feature. In addition, the money in a traditional savings account is highly liquid and can be easily transferred or withdrawn. 
  • Money market accounts. These accounts are individual savings accounts that typically come with a higher interest rate. Some even offer the ability to make debit card purchases and write checks. The downside is that these accounts usually require a higher minimum balance and limit the number of monthly purchases and transfers. 
  • Certificate of deposits (CDs). These savings accounts come with a higher interest rate. However, there are conditions you must agree upon before you make your first deposit. The largest concession is you won’t be allowed to withdraw any of the money for a specified amount of time. These “terms” typically range from three to five years, and early withdrawal can result in a severe financial penalty.  
  • Reward-based online savings account. These savings accounts offer higher financial incentives for saving your money. These incentives are based on the amount of money in your account which can help you to limit spending and increase your saving habits. The money is still easily accessible and available whenever you need it, except that you can enjoy way more rewards than a traditional savings account. 
  • Individual Retirement Accounts (IRAs). IRAs are retirement accounts that are specifically meant for long-term savings. These accounts will normally come with several tax benefits that will help them grow over time. The downside to these savings accounts is that they are not liquid at all, and there are often severe penalties for withdrawing the money early.

What Are the Requirements to Open a Savings Account?

The requirements to open up a savings account are essentially the same as opening a checking account. You’ll need:

  • Your government-issued ID
  • Social Security Number or Individual Taxpayer Identification Number
  • date of birth
  • address
  • phone number
  • Other contact information

The only difference is that the typical minimum deposit to open a savings account is much higher than opening a checking account.

What Are the Alternatives to a Savings Account?

You have many options when you’re looking to save money. The traditional savings accounts mentioned above are preferable because you’ll have fairly easy access to your funds and can open up as many as you like. You might incur a penalty for withdrawing funds on some of them, but you can have the money in your hand relatively quickly.

These are the alternatives to savings accounts that can net you much higher profits but aren’t anywhere near as liquid and often come with risks:

  • Cash. There is nothing wrong with stockpiling a sizable amount of cash just in an emergency. However, there are a lot of risks that come with using your mattress or a shoebox as your savings account. Not only is there a risk of theft or fire, but the money won’t be growing. Inflation is usually around two percent annually, so you’ll technically be losing value by keeping cash. 
  • Stocks. Playing the stock market can net you many profits when the company grows and succeeds. However, you could also wind up losing money if the company fails and goes bankrupt. Stock trading is a substantial risk, but you should do fairly well if you buy low and sell high.
  • Real Estate. There is only so much land to go around. Having a piece of it (no matter how small) is an excellent way to increase your savings over time. Real estate is typically a very stable investment, so it’s unlikely that you’ll lose money. However, “unlikely” isn’t “impossible,” and there are several ways that a real estate investment can backfire.

Open a Yotta Account That Meets Your Needs

There are clear pros and cons with both checking and savings accounts. Checking accounts are excellent for everyday expenses and purchases but don’t come with interest payments. Savings accounts come with interest payments but are designed to deter spending.

Most people simply open up one of each type of account and link them together. It might be a good idea for you to follow suit so that you can meet all of your financial needs. You should open up your accounts with Yotta. We give you extra financial incentives for spending and saving money. You can have the best of both worlds and cover all your bases.

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