Putting your paycheck in a jar that sits on your shelf isn’t feasible when your earnings increase beyond birthday gift money and weekly chore allowance. At that point you’ll need a bank account. That being so, let’s take a look at two common options: checking account vs. savings account.
Learn the different purposes of checking and savings accounts, as well as how you can use them in tandem to conduct financial transactions and build long-term savings.
What is a checking account?
A checking account is a type of deposit account that’s held at a traditional bank, online bank, or other financial institution that allows regular deposits and withdrawals. Its main feature is providing you easy access to your money by way of debit cards, checks, and ATMs. Because of this, a checking account is your go-to account for daily expenses, like paying for groceries, Wi-Fi, and rent.
With a checking account, you can easily set up direct deposits and receive wire transfers from any U.S. bank.
Some checking accounts, including our Interest Checking Account, pay interest on the account balance. The annual percentage yield, or APY, on an interest-earning checking account is typically lower than a savings accounts.
What is a savings account?
A savings account is an interest-bearing deposit account that’s also available via a traditional bank, online bank, or another financial institution.
With a savings account, you can also set up direct deposits and receive wire transfers from any U.S. bank.
Savings accounts, like our Online Savings Account, can help you save smarter and faster than ever. They accelerate your savings (including your emergency fund) because they tend to pay higher interest rates than checking accounts. But in exchange, you have less access to your money. Many savings accounts don’t come with checks or a debit card, and you’re generally limited to just six withdrawals or transfers a month. (Exceeding the limit may result in having to pay a fee.)
Checking vs. Savings Accounts
When reviewing checking vs. savings accounts, it can be easy to get lost in the details. This side-by-side comparison will help.
How to Choose the Best Checking and Savings Accounts for You
If you’re in need of a checking account, don’t be too quick to open the first one you find. Think about what’s most important to you (no fees, ATM access) and how you deposit and spend money. Here are some features to look for:
- No minimum opening deposit
- No monthly maintenance fees (or easy ways to waive them)
- Access to nationwide ATMs for free
- FDIC insurance protection
If you want your checking at your fingertips, look for an account with secure mobile banking features like remote check deposit and the ability to transfer funds using a mobile payment service. Zelle is a payment network that works within the apps of many banks, including ours, to send money to friends and family.
Read about the benefits of an online checking account.
You should take the same thoughtful approach when considering savings accounts. Try to not get overwhelmed by the various offerings and focus your attention on these beneficial components:
- A competitive APY — the higher the APY, the more potential to grow your savings
- No minimum balance requirement
- No monthly maintenance fees (or easy ways to avoid them)
- Compound interest
- FDIC insurance protection
In addition to these, our Online Savings Account offers easy, automated ways to optimize your savings, including recurring transfers that allow you to move money to your savings on a schedule that makes sense to you. Our surprise savings analyzes your linked checking accounts for safe-to-save cash and then transfers it to your savings, so you don’t have to do so. We also offer Round Ups, an optional service that tracks your Ally Interest Checking accounts for transactions we can round up to the nearest dollar. When you accrue at least $5 in round ups, we transfer it to your Ally Bank Online Savings Account. In addition, our buckets allow you to divvy up your savings without multiple savings accounts or having to do any complicated math.
Should one account be used over the other?
Choosing how much you should allocate to your checking account or savings account depends on your financial needs.
For instance, if you’re looking to save for several things, like an engagement ring, a new exercise bike, a camping trip, or building up an emergency fund, putting the money in a savings account probably makes the most sense. (Our buckets tool can help you keep your savings organized all within one account.) Keep your money in savings — earning interest — then transfer it to a checking account once you’re ready to make a purchase or need the funds.
But for your regular, everyday expenses, a checking account is likely the best option.
The bottom Line
It’s beneficial to have both a checking account and a savings account. A checking account lets you manage and pay for everyday expenses and a savings account can help you save for your future.
At Ally, finding ways to improve your financial wellness is what we do best. Bank online with us today!