What Is The Difference Between Checking and Savings Accounts?

Understanding the roles of both a checking and savings account can be helpful when you are starting on your financial journey. 

A Checking account is simple in nature, it is an account that you can write checks from. In today’s world we aren’t writing checks all that often but this account is for your day to day use. It is usually linked to a debit card and should be used for everyday transactions if you do not utilize a credit card. This account should keep a regular amount in it and be utilized to have paychecks deposited to this account to maintain the balance month over month to be able to handle the expenses that may happen during the month or between paydays. This is the money that you intend to use in the next 30-60 days. 

A savings account is usually a secondary option offered by major banks that you may use such as Chase, Wells Fargo, BOA and others. This account should be used to hold excess and separate what you intend to spend from what you intend to keep. This way you are not tempted to use the money you have just because it is in your day to day checking account.  A normal savings account is best utilized by automatically transferring the unbudgeted or budgeted amount to be saved at the end of the month as soon as you receive you paycheck. This is the concept of paying yourself first to ensure that you are able to save for the goals you have set, rather than leaving saving and yourself as an afterthought to take care of when the month is over. A typical savings account should only hold a small amount of money to keep from charges occurring on the account and hold 1-2 months of funds to cover an emergency. Typical savings accounts do not accrue meaningful interest and are really just a separate place to store shorter term money. 

Once your savings account reaches the amount needed to cover an emergency or 1 month's expenses you will want to look at investing the savings you have each month or utilize a high yield savings account. A high yield savings account is very similar and is insured to the same amounts as checkings and savings accounts in most cases, but it accrues a much higher interest rate than a checking or savings account. While a checking or savings account will accrue 0.05% interest a High Yield Savings Account or HYSA will accrue 3.5-5% as of July 2025. This account should hold money that is being set aside for use within the next 12-24 months. Things like vacation savings, christmas funds, a new home fund or a new car fund are all great to utilize a High Yield savings account. This is because your money will be able to grow on its own, while you wait for the right time to use it and best of all it is still easily accessible if you do need to use it or a timeframe moves up. If you were to have invested the money, knowing you were going to need it soon, you risk having to sell the investment for a loss or worse, not having enough money because it has lost value in the short term. 

Checking, Savings, and High Yield Savings accounts are similar from the outside but each of them have a specific purpose and if you use them correctly, they can help simplify your finances and aid you in the pursuit of your goals!