Is my money safe in checking and savings accounts?

The Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor at FDIC-insured banks.1 This provides protection if an FDIC-insured bank or savings association fails.

What’s the Difference Between a Checking Account and Savings Account?

7 Min Read | Published: April 12, 2024

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This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.

Checking and savings accounts offer different features and benefits. Checking accounts are for regular transactions, while savings accounts are best for saving.

At-A-Glance

Checking accounts are designed for daily transactions. They typically offer debit cards and multiple ways for you to make payments or withdrawals.
Savings accounts are designed for saving money. These accounts typically allow you to earn interest on the balance.
Both checking and savings accounts play a role in financial management and saving for your goals.

Many banks offer two main types of accounts: checking and savings accounts. Both can serve crucial roles in personal financial management. You may already be familiar with each of these accounts, but having a good understanding of how they work can help you when it comes to using both checking and savings accounts wisely.

Checking vs. Savings Accounts

	Checking Account	Savings Account
Purpose	Spending	Saving
Interest	Sometimes, but usually minimal	Yes (Typically)
Debit Card	Yes (Typically)	No (Typically)
Limit on Transfers	No (Typically)	Typically six each statement cycle

(Source: Bankrate)

Checking Account

A checking account is designed to help you access your funds easily for everyday transactions. These accounts often come with debit cards, and typically offer multiple ways to make payments. In addition to using your debit card to pay, you can typically write checks or transfer money through mobile or online banking. You can also use your debit card to make deposits or withdraw funds at an Automated Teller Machine (ATM). Typically, you can access your account, check your balance, and even set alerts through online banking.

Many checking accounts pay minimal interest, that’s typically less than what savings accounts pay. However, checking accounts typically do not restrict how much money you can withdraw in one day. If there are limits, they tend to be higher than those associated with savings accounts.

Savings Account

A savings account is designed to help you save money. Your deposits earn interest, potentially growing your savings. This interest compounds, and the bank adds it to your savings account balance, which then earns interest again during the next period.

Keep in mind that savings account are not designed for everyday transactions like checking accounts are, and some banks and institutions set transfer limits on savings accounts which limit the number of transfers you can make per month. This is typically six each statement cycle but will vary depending on the bank in question.

Using a Checking Account

A checking account could help you cover your short-term expenses. Here are some examples:

Everyday expenses: You can pay for expenses such as gas, groceries, and similar expenses with a debit card.
Online purchases: You can also make online purchases with your debit card.
Paying bills: You write checks or make online payments from your checking account.
Withdrawing cash from an ATM: Checking accounts come with debit cards that let you withdraw cash from your checking account via an ATM.

Using a Savings Account

Savings accounts are useful for saving funds for long-term goals. Here are some examples:

Emergency fund: Save for unforeseen expenses like a job loss or medical emergencies and earn interest when the funds are unused.
Large purchases: Set aside money for significant expenses, such as a home down payment, car down payment, or furniture.
Travel fund: Minimize vacation-related debt by building up a travel fund in a savings account.
Home and auto repairs and maintenance: Have funds set aside to fix and maintain your home or vehicle.
Education expenses: Save towards college costs with a savings account.

How to Use Both Checking and Savings Accounts Effectively

Both types of accounts are useful as they each play a role in your financial management. Here are some tips for using these accounts effectively:

Create a monthly budget
A budget helps you track spending and monitor your checking account balance. If you follow your budget, you could have extra cash remaining each month to put into your savings account.
Use automated transfers
Many banks let you set up automated transfers between accounts making it easier for you to transfer extra funds to savings.
Checking account buffer
Keeping a small sum of extra money in your checking account could help you meet monthly minimum balance requirements and potentially avoid unintentional overdraft fees.
Set savings goals
Set clear goals for your savings account. For example, utilize a savings account for an emergency fund or repairs and maintenance. This will help you avoid using savings for anything other than the stated goal.

Frequently Asked Questions

The Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor at FDIC-insured banks.¹ This provides protection if an FDIC-insured bank or savings association fails.

Each account may come with monthly fees, such as monthly maintenance fees. You may also pay fees on overdrafts and out-of-network ATM withdrawals. Before opening a checking or savings account, check with the bank about potential fees.

The Takeaway

A checking account offers a convenient way to use your money for everyday transactions. Meanwhile, a savings account can help to facilitate saving for long-term goals or emergencies. Understanding how each account works can help you when it comes to managing your finances and reaching your financial goals.

¹ “Deposit Insurance FAQs,” Federal Deposit Insurance Corporation

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Bradley Schnitzer is a writer and email strategist who has covered personal finance and small business topics for over five years. He is passionate about personal finance and helping others understand their money.

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.

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