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

Where do you keep your money? Unless you are putting it in your mattress, you probably have a checking account and a savings account. You need a personal checking account to pay your bills and access cash when you need it. You also need someplace to put money aside for the future—maybe for a vacation or to buy a new car.

Checking and savings accounts serve very different purposes. A checking account is ideal for everyday financial transactions, such as paying bills, making purchases, and using an ATM card for cash. A savings account is designed to hold money where it will earn interest. Whereas checking accounts are for daily use, savings accounts are structured to have limited withdrawals. However, working together, checking and savings accounts can be valuable tools for managing your personal finances.

If you are currently in high school or college, you may already have a student checking account, but eventually you will want to open your own personal checking and savings accounts. It is important to understand the different functions of checking and savings, how to use them, and what you should expect from your bank.

Understanding the Basics of Checking

Digital banking, online payment services, and ATM cards make your cash easy to access when you need it. Checking accounts are structured to help you manage cash flow. That means income (e.g., your paycheck) is put into your checking account. Once it is in your account, you can use checks, your ATM card, or online transaction services to access that money to pay bills and buy things you need.

Because checking accounts are designed to help you spend money, they often don’t earn interest; a checking account is just a repository for your cash until you are ready to use it.

You must comply with certain terms when you maintain a checking account, and terms will be different at different banks. Many accounts require you to maintain a minimum balance of $200 or more and charge monthly service fees if the balance drops below the minimum. Some banks maintain paperless checking accounts and require all transactions, including monthly statements, to be electronic to avoid fees.

Learn about the benefits of each type of checking account at FSCB and which one  is right for you.

Most checking accounts give you flexibility and let you write checks or make electronic transactions. For example, you can manually deposit your paycheck or arrange for it to be deposited automatically. You can pay bills using the bank’s online bill pay service, or you can write checks and pay bills through the mail. With e-commerce on the rise, more service companies and businesses are eliminating checks and accepting electronic payments, either online directly through a payment portal or using services such as PayPal or Google Pay. However, you still need a checking account to store money to use for e-commerce transactions. Most banks are making digital transactions possible by offering their own mobile banking apps.

Because your checking account accepts incoming money, you might think of it as a staging area for your savings account. As you accumulate more money, you can move some of it into savings, where it will earn interest. Many banks encourage you to open a checking and savings account together and set up automatic transfers from checking to savings.

When shopping for a bank to open a checking account, there are some questions you should ask first:

  • Is there a minimum balance requirement?
  • What fees are associated with a personal checking account? How can I get those fees waived?
  • Do your checking accounts pay interest on deposits?
  • Can I use my ATM card like a credit card? Are there fees? What about cash withdrawals—do I have to use a bank ATM to avoid fees?
  • What about online banking? Do you have online bill pay and remote banking services?

First State Community Bank (FSCB) offers different types of checking accounts with different features. Many are free or can have fees waived, and others have a small minimum deposit requirement. FSCB offers online checking, money management, and other services, depending on your needs.

Download the Guide: Why You Should Switch to a Community Bank

The Basics of a Savings Account

When shopping for a savings account, there are other specifics to watch for. The first thing you should ask about is interest rates. The amount of interest you earn will vary depending on the bank, but most savings accounts pay less than 0.1 percent. Money market accounts offer higher interest rates and allow you to write a limited number of checks per month, and may offer an alternative to a savings account. Ask your banker about the differences.

Also ask if there is a minimum balance requirement for a savings account. Some savings accounts limit the number of withdrawals that can be made per month and have other penalties for certain account activities, so be sure to check for hidden fees.

To help you build your savings, consider using an automatic deposit. Many banks require you to automatically transfer money from checking each month to build your savings.

First State Community bank has different savings accounts for different needs, including a health savings account that has tax advantages.

Checking and Savings Work Together

Your checking and savings accounts give you a better return if you use them together. Automatic deposits, for example, help you build savings in case of an emergency. You can also use your savings account to save for a dream vacation or something special. Many banks also tie checking and savings accounts together so that if you overdraft your checking account, the difference is taken from your savings.

Of course, checking and savings are only two of the types of accounts that most banks offer. There are other tools, such as certificates of deposit (CDs), which help you save with higher interest rates in exchange for committing to save your money for months or years. Retirement planning is also offered by many banks, and your financial advisor can help you with individual retirement accounts (IRAs) and other long-term savings strategies.

Your bank offers a wide range of checking and savings alternatives, each with their own terms and benefits. Contact your local bank to determine what types of accounts are best for you.

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