Checking vs. Savings Accounts | Why You Need Both


When it comes to banking, there are two main types of accounts, checking and savings.

Most people only have one type of account, but it’s important to have both.

In this blog post, I’ll walk you through the differences between checking vs. savings accounts and why it is important to have both types of bank accounts.

In the end, you will see why if you want to reach your financial goals, having both accounts is required.

Checking vs. Savings Accounts | Why You Need Both

What Is A Checking Account?

checking vs. savings accounts

A checking account is a type of bank account that allows you to easily access your money.

You can use it to pay bills online, make everyday purchases, direct deposit your paycheck, and make cash withdrawals using your debit card.

When you open a new checking account, the bank will usually give you a debit card and checks.

Your monthly statements will also show all of your basic transactions, like where you are spending money, the checks you’ve written, and the money you deposited into your account.

In some cases, your checking account pays you interest.

Most checking accounts offered by traditional banks and credit unions pay interest on a tiered basis.

This means the more money you have in your checking account, the higher the rate of interest you earn.

On the other hand, most online banks that all you to earn interest on your checking account do not use the tiered system.

The Importance Of A Checking Account

Having a checking account is a first step to building wealth.

You can look at this account type as the foundation of your financial life.

It is used to deposit money, as well as direct deposit of paychecks and mobile check deposit.

You can also use it for paying bills, to write checks, make debit card purchases, and withdraw money at an ATM.

If you have savings accounts, you can transfer funds between the accounts too.

By having a checking account, you make your financial life easier and less costly.

For example, if you receive a check and don’t have a checking account, you need to find a place that accepts personal checks.

This takes time as not every place will accept the check.

And the ones that do, usually will charge you a fee for cashing it.

With a checking account, you don’t have to find a place to cash it.

You can visit your local branch or use a mobile app and deposit the check.

Checking Account Advantages And Drawbacks

checking account pro and con

There are many benefits of checking accounts.

By far the biggest advantage is the simplicity of your financial life.

You can manage all of your finances from home, assuming you have online access to your financial institution.

There is no more visiting brick and mortar banks to conduct transactions or if you are unbanked, finding a place that you can cash checks or pay using money orders.

The biggest downside is the potential of fees.

Some banks charge a monthly maintenance fee, a minimum balance requirement fee, ATM fees, and an overdraft fee to account holders.

The good news is you can avoid the monthly fee by using direct deposit or making a certain number of debit purchases every month.

And you can avoid overdraft fees, by turning off the overdraft protection.

Here are more of the advantages and drawbacks of checking accounts.


Save time. No need to find a place to cash a personal check or your paycheck.

Save money. There are no fees for cashing or depositing checks.

Spending money. With a debit card and checks, you have a variety of ways to spend your money.

Mobile app. Most checking accounts come with a mobile app that makes banking on the go a breeze.

Bill pay. Pay all your bills from home with the automated bill pay feature most banks offer.


Account fees. Many financial institutions charge a monthly fee on their checking accounts. These fees are either a flat monthly maintenance fee or a service fee you can avoid by having a minimum balance in the account.

ATM fees. If you use an out of network ATM, the out of network ATM will charge you a fee. While some checking accounts will reimburse the fee on ATM withdrawals, many do not.

No interest. Most checking accounts pay little or no interest on the money you keep in the account.

Overdraft fees. Be aware that most checking accounts have an overdraft feature that will allow your balance to go negative. When this happens, the bank starts charging you hefty fees.

What Is a Savings Account?

saving money

Savings accounts work by giving you a deposit account for saving money.

While you could store money at home, savings accounts are a much safer option.

You earn interest on the money in savings accounts, which means you can make money on your deposited funds.

You can use savings accounts to save for short-term and long-term goals, such as your emergency fund, a down payment on a house or for retirement.

Even better, many banks and credit unions allow you to have multiple savings accounts, so you can put money aside for multiple saving goals.

When you open a savings account, the bank will usually give you a passbook or statement to record your transactions.

Interest accrues daily and is credited to your account monthly.

In most cases, you earn daily compounding interest.

The Importance Of A Savings Account

The most important part about savings accounts is that they help you to build a savings cushion.

Life throws curve balls at us all the time and by having money saved, we can more easily handle these events.

They also teach us the importance of putting money away for longer term goals as well.

Savings Account Advantages And Drawbacks


Separate money for savings goals. If you keep all of your money in your checking account, chances are you will spend it. By keeping it separate, you ensure you will save money.

Interest bearing account. While the interest you earn on your savings account won’t make you rich, it does compound and grow into more money over time.

Multiple savings accounts. Many banks allow you to have multiple savings accounts. Doing this allows you to have an account for each of your savings goals, making it easier to manage your money.

Money is safe. You have financial protection with a savings account. It can only grow in value thanks to compound interest. In the rare event the bank goes under, Federal Deposit Insurance Corporation insurance kicks in, giving you your money back.


Low interest rate. While the money in savings accounts does earn interest, it is typically low making them not a great vehicle for long term savings.

Lose purchasing power. While your principle is safe in a savings account, it doesn’t mean you won’t lose out to inflation. When interest rates are less than 2%, you are losing purchasing power by keeping your money in a savings account.

Withdrawal limits. The government limits withdrawals from savings account to 6 per statement cycle. While you can have unlimited transfers of money into your account, you can only take money out 6 times a month.

Why Having Checking And Savings Accounts Is Smart

So why should you have both checking and savings accounts?

The bottom line is they offer you easy access to your money and they simplify your financial life.

You can easily set up and track your spending with a checking account and traditional savings accounts allow you to put money away for future goals.

And when you combine the two, you can transfer money between the two quickly.

Add in the options of online banking and mobile banking, and you have easy access to your money no matter where you are.

How To Choose The Best Account For You

When you are looking for a checking or savings account, it is important to find one that meets your specific needs.

Some things you should take into account include:

  • The monthly maintenance fees associated with the account
  • The minimum balance requirements to avoid monthly fees
  • If the bank has physical branches in your area
  • What kind of annual percentage yield or interest rate the account pays
  • The kind of overdraft protection is offered
  • Do they offer mobile banking services
  • Do they reimburse out of network ATM fees
  • What other services do they offer, such as bill payments, account alerts, or wire transfers

How To Open A Checking Or Savings Account

Opening a new checking account or savings account is easy and can be done in person at a bank or credit union, or online.

When opening an account, you will need to provide some personal information, such as your name, Social Security number and address.

You will also need to provide documentation, such as a driver’s license or passport.

Some banks may require you to make a minimum deposit when opening an account.

If you open your account in person, most times you will get your debit card right away as well as starter checks until your personalized checks come in the mail.

If you open your account online, the bank will mail you your debit card.

Final Thoughts

Those are the differences between checking vs. savings accounts.

As you can see, they both offer something different and both are critical for your long term financial success.

If you want to reach your financial goals, you need to have both checking and savings accounts.

This is the only way to ensure that your money is working for you and not against you.

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