What's the difference between checking and savings?

Checking and savings accounts are most useful when working in harmony to provide financial flexibility and security. Read on to learn more.

Checking and savings accounts have similarities. They both hold money. They both use account and routing numbers to transfer funds to, from and between them. They can even share some of the same benefits, such as online banking.

They also serve different purposes and have some important distinguishing features. Checking accounts typically earn less interest than a savings account. Checking accounts let you withdraw your money whenever you want. Savings accounts are intended for storing money you don't plan to use daily.

Since both are beneficial to your financial security, which account do you use at what time?

Which bank account is best for everyday use?

Checking accounts are designed for everyday transactions, and they make it easy to access your funds. When you're on the go, you can swipe your debit card, withdraw cash from an ATM, write a check or use a digital wallet.

Checking accounts sometimes even include rewards for using your debit card, such as cash back or points.

Ideally, however, you won't be depleting your checking account each day. Hopefully, you will even have some funds left over at the end of the current paycheck cycle. Opening a savings account to store the money you don't expect to spend in the immediate future can help you save more, earn interest and provide security in case of financial emergencies.

Yes, you need both checking and savings.

You may be thinking, "Checking accounts sound pretty handy. Do I need both checking and savings?"

Letting money sit idly in a checking account for too long can cost you over time. As inflation occurs, the value of your money declines unless it's growing. One way your money can grow is through earning interest. Opening a savings account is the easiest way to start growing the money you're not using.

If your nature, like many of us, is to spend without regard for your future self, a savings account can help. Separating your money based on when you intend to spend it — and how you intend to use it — can help you see your financial goals more clearly.

Weighing savings account rates versus flexibility

Finding the right account can be a balancing act. On the one hand, you want to see the money in your account grow. On the other hand, you want to keep your money liquid, or easily converted into spendable cash. Generally, the more flexible an account is, the less interest you'll earn.

A savings account is often the first step to saving. You can link a savings account to your checking account and even make saving simple through automatic transfers.

If you're looking for a potentially higher rate than a savings account, and don't need the funds immediately, you might consider a CD, or certificate of deposit. Financial needs and goals determine your choice between a CD and a savings account. As you get better at saving, your savings plan will likely include multiple accounts with different purposes for each.

Quiz: Checking versus savings account

Now that you know the difference between checking and savings accounts, test your knowledge by imagining the following scenarios.

  1. It's time to pay your bills.

    Q: Uh-oh, rent's due. Which account are you using to pay bills?

    A: Use your checking account to pay bills, and let your savings continue to earn interest. Pro tip: If you must dip into your savings to pay bills, transfer only enough to cover that month.


  2. You want to save money for emergencies.

    Q: You've decided to set aside money for unexpected expenses. What type of account is best for an emergency fund?

    A: A savings account is perfect for an emergency fund. Be sure your account enables you to access your money quickly and without penalty.


  3. You're out to dinner.

    Q: You're on a first date and want to pay for your companion's meal. They immediately take you up on it. Which account do you use?

    A: This one's easy to remember: Your checking account picks up the check.


  4. You want to send money to a friend.

    Q: Your carpool buddy has requested you use a payment app to send one another money for gas each week. Which account are you linking to the app?

    A: Your checking account is best for day-to-day transactions like this one. Linking your savings account to a mobile payment app could derail your future savings plans.


  5. You want to save for vacation.

    Q: You just got a bonus from work and want to set it aside to pay for next year's vacation. Where should you stash the money?

    A: Obviously, savings is the right choice here. But since you don't plan to spend it for a while, you may want to consider a six- or 12-month CD. The term will prevent you from being tempted to spend it early, and the potentially higher interest rate will earn you extra spending money for the trip.

The USAA Advice Center provides general advice, tools and resources to guide your journey. Content may mention products, features or services that USAA Federal Savings Bank does not offer. The information contained is provided for informational purposes only and is not intended to represent any endorsement, expressed or implied, by USAA or any affiliates. All information provided is subject to change without notice.