What is The Difference Between a Checking and Savings Account?

This article is mostly targeted to those new in the world of finance and banking, but hopefully those who are more experienced will find golden nuggets also! If you are new to banking, then the first thing you need to know is that a checking and savings account are going to be the backbone to your finances. Below we will discuss what each is and clear up any confusion regarding the two.

Checking Accounts

Just about all banks offer a service called a checking account. This allows account holders to withdraw or deposit money in a federally protected account. Generally, there is no limit on the number of withdrawals or deposits one can make, and this account allows for the use of debit card and/or checks. Some banks that offer checking accounts require a minimum balance to always be in the account, but there are still quite a few banks that don’t require a minimum balance.

Most banks have around three to four different types of checking accounts. Each account type has different terms and regulations, so it’s important to understand the terms based on the type of account you are opening.

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Below are the most popular type of checking accounts that banks offer.

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Free checking accounts

These are the most common accounts for most banks since the customer will never have to pay a fee unless they overdraft. However some financial institution may require you to make direct deposits or have some other restrictions in order the keep the account free.

Regular checking

This account is usually the account the bank will try to get you to sign up for since they make more money from these accounts. With a regular checking account there are typically fee’s associated with it and you also have to maintain a minimum balance.  I would not recommend signing up for this type of account since most banks offer free checking accounts as mentioned above.

Second-chance checking

This account is not offered by all financial institutions so if you need second chance checking you will have to check with each individual institution. When you find a bank that does offer second chance checking, they will run a check on you using either Chexsystems or TeleCheck. These two systems allow the bank to see if you have ever had any history of writing bad checks, consistent overdrafts, or account abuse.

The great thing about second chance accounts is that they allow you to open an account with the bank even if you have negative reports on the ChexSystems or TeleCheck. However you will have to check with the institution before opening the account for more details because there some restrictions that apply. There are no set standards on how this account operates because it is different with each bank.

High yield checking

This account is for those who will maintain a large balance. The bank will reward them by offering them higher interest rates. You can always request to open a high yield checking, but most banks will tell you that you either need to start with the a free checking account and when your balance gets large enough they will upgrade you to a high yield account. Or that you need to deposit a certain amount upfront to open up the high yield account.

Other than the high interest rates, there are other advantages to having a high yield account, such as travel discounts, accidental death insurance, and dining discounts.


Several types of fees can be charged to a checking account. The best way to avoid any fee is by simply knowing what causes the fee’s in the first place. Make sure you read terms before opening your account.


It is important to know that checking accounts can be overdrawn if the owner of the account isn’t careful with the money. The fee for overdrafting will vary from bank to bank, but the average overdraft fee is $25.

To avoid overdrafting, you should do several things. First, you should download the banks app to your smartphone so you can always check your balance before making a purchase. Next, you can access true overdraft protection which will be in form of credit card, savings, or line of credit. If you have overdraft protection linked to your account you avoid paying the high penalty fee.

Savings Accounts

These accounts are called savings accounts because…well, they help you save your money! They are typically accompanied with balance requirements and excessive withdrawal penalties. However, these restrictions do vary from bank to bank.

Although some people might get frustrated with the minimum balance requirements and excessive withdrawal penalties, I think it’s great! This forces you to keep the money in your savings account and protects you from impulse spending.

You can open up a savings account at a bank or a credit union. Below are the details of each.

Bank savings account

Banks (especially large banks) will have a minimum balance which must be maintained. If your account goes below that minimum balance a fee will be applied. The number of withdrawals you can make in a month is limited. The typical bank will allow you to make six withdrawals per month from your savings account. If you make more than six withdrawals in a month then an automatic fee will be applied. If you continue to withdraw from the account too many times, the bank does have the right to turn your savings account into a checking account…and as I am sure you could have guessed, they will likely charge you a fee to do this.

Credit union savings account

These accounts tend to work in a similar way as banks but there is a slight difference. Both typically require a minimum balance and will have limits on withdrawals. However, credit unions are typically much more forgiving and instead of jumping straight to charging you a fee, they will send you a few warnings first. You will also usually get a higher interest rate with a credit union, which for some people is a huge benefit.  However, the biggest downside to credit unions is they are usually local. This means that when travelling out of town, you will not have access to your savings account.

Both banks and credit unions have their pros and cons. If you don’t mind not being able to have access to the credit union when travelling, I would highly recommend opening a savings account with a credit union. However, if you want to make sure you always have access to your savings no matter where you are, a bank will probably be your better option.

The Bottom Line

As you can tell, the biggest difference between a checking and a savings accounts is the fact that a checking account is meant for spending. There are no limits to how many withdrawals can be made. The savings account is meant for savings, if you make too many withdrawals a penalty will be applied.

If you want to take control of your finances, it is best to have both a checking account and a savings account. There is nothing more motivating than watching the balance on your savings account increase month after month!


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