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What’s the Difference Between Checking and Savings Accounts?

EXPECTED READ TIME:7 minutes

When it comes to managing your money, few tools are as practical as checking and savings accounts.  

More than 124 million American households have at least one of these, making them the most popular products among credit unions and banks.   

As widely used as they are, it’s easy to overlook some of the unique features of these financial instruments. 

Here’s your guide to understanding the differences between checking and savings accounts. 

Differences Between Checking and Savings Accounts

Both checking and savings accounts allow you to deposit money into a credit union or bank and withdraw it later when you need or want it. Although similar in many ways, there are some important distinctions between these two financial products.  

Did you know credit unions are owned by their members?

Name

Credit unions and banks use different names for these accounts. Traditional checking and savings accounts offered by banks are technically called share accounts at credit unions. Individually, they’re known as share draft accounts (checking) and share savings accounts.

The reason? You. Or, more specifically, your role in the institution itself. Traditional checking and savings accounts offered by banks are technically called share accounts at credit unions.  

When you join a credit union, you acquire a small ownership stake in the organization. This makes you a shareholder who has a say in how the overall business is run, a relationship that credit unions formally recognize with account names.  

Traditional checking and savings accounts offered by banks are technically called share accounts at credit unions.

That said, these accounts are often still referred to in shorthand by the more common names, “checking” and “savings,” whether they’re found at a credit union or a bank. For this reason, you’ll hear us use these terms throughout the article.

Purpose

Checking accounts are designed to be a secure place where you deposit money that you need or want to access quickly, easily, and frequently. You’ll typically use funds from these accounts to pay bills, buy groceries, and make everyday purchases.

On the other hand, savings accounts are where you set aside money that you plan to tap into less often. Ideally, you’ll make consistent deposits into these accounts, allowing them to grow over time and become a nest egg for larger purchases or cash reserves.

Exactly how do checking accounts work?

Withdrawal Limits

With a checking account, there’s usually no limit on the number of withdrawals you can make each month. In the past, savings accounts limited the number of withdrawals or transfers you could make each month to six. If you exceeded this amount, your financial institution charged a fee or converted your savings account to a checking account.

Thanks to new regulations, banks and credit unions no longer have to uphold withdrawal limits on checking and savings accounts. For example, credit unions like PenFed do not have limits, but you may want to check with each institution to be sure of their rules.

Thanks to new regulations, banks and credit unions do not have to uphold withdrawal limits on checking and savings accounts.

Interest or Annual Percentage Yield

Whether you use a credit union or bank, checking accounts don’t earn much (banks pay interest, credit unions pay dividends) on the money deposited in them. On average, rates for standard checking accounts are a fraction of 1%.

Traditional savings accounts offer slightly higher yields than checking accounts, yet most still pay less than 1%. That means your money won’t grow as much or as quickly as if you put it in a certificate account or other savings vehicle.

Despite the low rates of return, it’s worth your time to search for checking and savings accounts with the highest yields possible. After all, a small amount of additional growth on deposits you were going to make anyway beats no growth at all.

A small amount of additional growth on deposits you were going to make anyway beats no growth at all.

Fees

Even though many credit unions and banks offer free checking accounts, most continue to charge certain fees for their standard checking options. These can include:  

  • Monthly maintenance fee to have a checking account with the institution 

  • Overdraft fee if you don’t have enough cash in your account to cover a transaction 

  • ATM fee if you use an out-of-network ATM 

  • Minimum balance fee if your account balance drops below a minimum daily amount 

  • Check ordering fee if you need to buy more checks 

  • Inactivity fee when you don’t deposit or withdraw money from your account for a certain amount of time (usually 6-12 months)

Before opening either type of account, look for options that have the fewest or least expensive fees.

Depending on the credit union or bank you use, you may (or may not) have to pay fees for a standard savings account. Common savings account charges include: 

  • Monthly maintenance fee for the institution to maintain your savings account  

  • Excess withdrawal fee (usually $5-$10) if you tap into your savings account more than the monthly limit (typically six times) 

  • Minimum balance fee if your account balance drops below a minimum daily amount 

  • Inactivity fee if there are no transactions made on your account in a certain amount of time (usually 6-12 months) 

Before opening either type of account, look for options that have the fewest or least expensive fees. You can also try asking the credit union or bank to waive charges like monthly maintenance fees, especially if you have multiple accounts with the institution.  

Need help with your PenFed checking account? Try our help center.

Features

Since checking accounts are meant primarily for paying bills or making day-to-day purchases, their features are designed for convenience. Features of a checking account typically include:    

  • Debit card that swipes like a credit card but is linked to your checking account and requires a PIN (can also be run as “credit” to avoid using the PIN) 

  • Paper checks for bills and payments you can’t or don’t make with a debit card  

  • Direct deposit for paychecks and other digital payments made to you 

  • Online and mobile banking to access your account from internet-connected devices 

  • Overdraft protection if you have your checking linked to another account 

Features for savings accounts are generally meant to encourage you to leave deposits untouched for longer periods of time. Features of a savings account often include:  

  • Earnings (dividends or interest, depending on your institution) to help deposits grow incrementally over time 

  • Direct deposit to make putting money into your account easier 

  • Digital banking services such as transfers, account alerts, and mobile deposits 

Checking Account Savings Account
Also called share draft accounts at credit unions Also called share savings accounts at credit unions
Used for frequent transactions or spending Designed for saving money over time
Offers unlimited monthly withdrawals May penalize you for too many withdrawals
Pays little or no interest/dividends on money Pays slightly higher interest/dividends
May charge fees for account maintenance, overdrafts, and certain convenience features May charge fees for maintenance, excess withdrawals, and low balance amounts
Features make it easier to access your money frequently Features encourage leaving your money in the account for longer periods

Can You Have Both a Checking and Savings Account?

It’s perfectly fine to have both a checking and a savings account. In fact, you should have each type of account. That way you can enjoy the features and benefits of both. 

Keep in mind that you don’t necessarily have to open your checking and savings accounts at the same financial institution. 

For instance, if you’re saving with one institution and you find a checking account at another with more features that fit your lifestyle, you can open an account for living expenses there and maintain a savings account at your current institution. For example, you might always keep at least one savings account at a credit union where your money earns more dividends.    

Although you may find it slightly more difficult to keep track of accounts at separate financial institutions, the advantages may offset any potential disadvantages. When it comes to your money, it’s never a bad idea to diversify

When it comes to your money, it’s never a bad idea to diversify.

Is It Better to Have a Checking or Savings Account?

As money management tools, checking and savings accounts work best when they’re used in tandem. So, it’s better to have both types of accounts rather than one instead of the other.   

For example, using your personal budget as a guide, you could keep enough money in a checking account each month to take care of your essential expenses and leave a little extra for spending. Then, you can put whatever you have left from each paycheck or at the end of the month into a savings account, treating it as “out of sight, out of mind” so it can grow over time.

Checking and savings accounts work best when they’re used in tandem.

Another advantage to having both a checking and savings account — particularly if the accounts are at the same credit union or bank — is being able to move money back and forth between accounts using online or mobile banking. This provides extra peace of mind when you face unplanned expenses.

Is Money Safer in Checking or Savings?

As long as your money is deposited in a checking or savings account (or both) at a federally insured credit union or bank, it’s safe.  

The National Credit Union Administration (NCUA) automatically guarantees checking and savings account deposits up to $250,000 for each credit union member. The Federal Deposit Insurance Corporation (FDIC) does the same for customers who have money in checking or savings accounts at FDIC-insured banks.  

So, if your credit union or bank were to go out of business, the cash in your checking and savings accounts would be covered, dollar-for-dollar, up to the $250,000 limit.

What does "free checking" actually mean?

The Takeaway

Wherever you are on your financial journey, checking and savings accounts can help.  

These popular accounts are easy to set up and use, provide unmatched security and flexibility, and can form the foundation for your money management plan now and for years to come.

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