Dollars and Sense: Checking Versus Savings Account

Navigating the world of personal finance can feel like learning a new language. It has complex jargon, rules, and advice you need to know but rarely learn.

Telling the difference between checking versus savings accounts is like learning how to say “Hello.” It’s a core piece of money management and the starting point for more complicated (but effective) conversations about saving.

Here’s everything you need to know about savings and checking accounts, including which is best for what purpose and how to use each one.

What is a checking account?

A checking account is a type of bank account primarily used for daily transactions. When you put money in the bank or credit union for the first time, this is usually the type of account you’ll open. You might use it for buying groceries, paying bills, or depositing your paycheck instead of putting money in it for saving.

The checking account type was made for frequent use, so its tools and features are all about ease of access and convenience. It connects to a debit card, which can be a physical and digital card, used to spend money from your account — like making purchases or withdrawing cash from ATMs. You might have already guessed from the name, but you can also use a checking account to write and deposit checks.

5 benefits of a checking account

So how does a checking account work? While its main use is to help you make daily transactions, it has a few more benefits:

1. Safety and security. Modern checking accounts offer robust protection for your funds and personal data. They use encryption for secure data handling and have fraud monitoring systems to detect suspicious activities. Plus, the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) typically insure funds up to $250,000 in these accounts, so if something happens to your money, you can usually get it back.

2. Transactions. Many checking accounts offer the flexibility of free, unlimited transactions, which means you can spend as much as you have without any per-transaction fees. Just keep in mind that some may have limits on withdrawals or deposits. Always check with your bank to understand your account's specific terms and limits.

3. Overdraft protection. Some accounts offer features that prevent you from spending more than you have — also known as overdrafting. With this protection, you’re less likely to have to pay overdraft fees.

4. Direct deposit. Some employers deposit your paycheck directly into your checking account. You’ll access your funds quickly and easily, although it might take a few days for your money to show up.

5. EarnIn access. When you use a checking account, you can connect it to the EarnIn app to set up same-day pay. You’ll be able to access a portion of your earned wages as you work, which helps with budgeting, financial planning, avoiding debt, and more.

What is a savings account?

A savings account is an account where you’ll set aside funds for future needs, emergencies, or specific goals. Unlike a checking account tailored for regular transactions, a savings account aims to help you grow your money over time with interest. If you're saving for a vacation, a down payment on a house, or an emergency fund, this account provides a secure and growth-friendly environment for your funds.

Savings accounts usually have limited transaction capabilities — some charge high fees for payments and transfers — but they compensate by typically providing higher interest rates. This means the money you deposit grows more over time, thanks to the power of compound interest. A high-interest savings account offers the highest rates (and the most growth).

4 benefits of a savings account

While the primary allure of a savings account is its interest-earning capability, it has a few other benefits:

1. Fast and easy setup. If you already have a checking account, your bank usually lets you create a savings account online without needing to visit a bank branch. You can likely compare options and open an account without even leaving the house.

2. Checking account link. Most banks allow you to link your savings account to your primary checking account. That means you can transfer funds back and forth seamlessly, and some even let you set up automatic deposits for easy saving.

3. Flexible access. While there are limits on certain types of transactions, you can generally withdraw your full balance at any time if needed. This makes savings accounts great for unexpected expenses.

4. Federal insurance. Just like checking accounts, savings accounts are typically insured up to $250,000 by the FDIC or NCUA, keeping your money safe at all times.

Do checking and savings accounts pay interest?

Checking and savings accounts can both pay interest, though it depends on the financial institution. Generally, savings accounts offer much higher interest rates. Here’s a deeper look at each:

Checking accounts

While some checking accounts offer interest, it's typically a much lower rate than savings accounts. The primary purpose of a checking account is accessibility and frequent transactions, not growth. There are a few interest-bearing checking accounts out there, often called reward or high-yield checking accounts that might come with certain requirements, like a minimum number of monthly transactions.

Savings accounts

The primary allure of a savings account is its interest-earning capability. Savings accounts almost always offer higher interest rates than checking accounts, especially high-yield options. This interest compounds, meaning you earn interest on the interest you’ve already gained, leading to exponential growth over time.

The safety of a checking account versus a savings account

Both checking and savings accounts offer tight security measures to protect your money from cyber criminals or banking issues. But generally, neither is more safe than the other. Security depends more on your bank than the account.

Here are the main safety features of these account types:

- Insurance. Both savings and checking accounts are typically insured by the FDIC or NCUA up to $250,000 per depositor per institution. This means that your money is safe even if the bank or credit union faces financial difficulties.

- Fraud protection. Modern banking systems have advanced automatic fraud detection and monitoring systems. If they find any suspicious activity, they’ll tell you right away and pause your accounts so there’s as little damage as possible. Additionally, many institutions offer zero liability for unauthorized transactions, which means you can often get your money back.

- Encryption. Online banking platforms use strong encryption to protect your data and transactions, keeping your personal and financial information confidential.

- Physical safety. When you keep wads of cash at home, they’re prone to theft or loss. Storing your money in a bank makes sure it's safe and always accounted for.

Should I have both checking and savings accounts?

Absolutely. Most people have both a checking and savings account because it’s a simple yet comprehensive approach to managing your finances. A checking account provides the convenience you need for daily transactions, and a savings account nurtures your funds for future needs and potential emergencies.

On top of that, most banks offer features that link these two accounts, making transfer management a breeze. Some also have inter-account overdraft protection, where funds from the savings account cover any shortfall in the checking account, preventing potential fees.

Just keep in mind that having both a checking and savings account should be your starting point, not your final destination. If you want to split up your savings, build credit, or save for a specific purpose (like retirement), you might need additional accounts and a credit card.

Balancing accessibility and savings with EarnIn

While savings and checking accounts help you start your financial journey, it doesn't end there. If you’re looking for easy access to your pay without waiting for a paycheck to hit your checking account, try EarnIn.

Earnin’s Cash Out tool gives you up to $100 a day and up to $750 every pay period — with no credit checks, no interest, and no mandatory fees. You can put money into your savings or use it for day-to-day expenses without worrying about waiting.

Download EarnIn to make every day payday.