A checking account and a savings account are both essential for managing your personal finances. Checking accounts are for day-to-day spending, while savings accounts are for stashing money for the future and earning interest. Understanding the difference between them will help you better manage your money and meet your financial goals.

Checking vs. savings account: Basic features

Checking accounts are where you keep money intended to meet your everyday spending needs. In times past, you would access money in your checking account using paper checks, and balance your budget in a checkbook. Checks are still around, but today most people use debit cards and mobile apps to access and manage money in checking accounts.

There’s generally no limit to transactions, and checking accounts generally earn low or no interest, with the average account earning 0.06% APY.

Savings accounts are intended for saving for the future or for creating an emergency fund. While rates vary, the average account earns 0.09% APY. Savings accounts offer minimal access to your funds due to Regulation D, a rule put into place by the Federal Reserve that mandates certain types of telephone and electronic withdrawals, including transfers from savings accounts up to 6 per statement cycle.

Both checking and savings accounts can be protected by the Federal Deposit Insurance Corp. (FDIC) and the National Credit Union Administration (NCUA). The FDIC and NCUA insure bank accounts up to the legal limit per depositor, guaranteeing the safety of your money in case the bank or credit union fail.

Checking account features

Checking accounts are designed to be convenient for everyday access, via checks, debit cards, mobile apps and online transfers. You can deposit or withdraw money at a branch office or through an ATM, although some checking accounts put a cap on the amount you can withdraw each day. Writing checks or making purchases with a debit card very seldom has daily limits.

Some checking accounts charge monthly maintenance fees, but they are easily waived if you maintain a minimum balance or set up recurring direct deposits. Other fees that can be charged are for holder actions, such as overdrafting the account, requesting paper statements, using a third-party ATM, requesting debit card replacement or closing an account shortly after opening it. By being diligent with your usage, you can avoid checking account fees.

While banks don’t generally pay much in the way of interest on checking accounts, you can find interest-bearing accounts that pay as much as 4.00% APY if certain requirements are met.

Checking account features may include:

• Easy access
• ATM/debit cards and checks
• Online banking and mobile apps
• FDIC insurance
• Earns some interest
• Online bill payments
• Bonuses and rewards
• Overdraft protection

Savings account features

A savings account is intended to be a place to build wealth or save for your financial goal over time, while still offering a degree of liquidity. Because withdrawals are limited in many cases, savings accounts are meant to hold money you don’t need easy access to.

Savings accounts have fewer fees than checking accounts, and they generally earn a higher rate of interest. Rates on accounts can fluctuate depending on various factors, such as when the government adjusts the federal funds rate. And the rates offered vary greatly among accounts, so it’s important to shop around to find your best deal.

In addition to traditional savings accounts, you can open a variety of other accounts that work similarly to savings accounts. These include online savings accounts, money market accounts, certificates of deposit, health savings accounts (HSAs) and flexible spending accounts (FSAs), college savings accounts and a variety of retirement accounts. Due to their focused purposes, some of these account types have limited uses or availability.

You can move money in and out of your savings account through direct deposits and withdrawals, or transfers between deposit accounts, which is done via Automated Clearing House (ACH). ACH transfers generally take one to two business days to clear.

Savings accounts can offer several features:

• Higher interest rates, in many cases
• Low to no fees
• Debit cards and checks, in some cases
• Online banking and mobile apps
• FDIC and NCUA insurance
• Automated transfers from other accounts

How Fed Regulation D affects your savings account

The Federal Reserve’s Regulation D limits the number of transfers and withdrawals you can make in certain types of accounts. The rule has its roots during the Great Depression era to set monetary policy. Currently banks must maintain in reserve 3% of their total liabilities over $16.9 million and 10% of total liabilities over $127.5 million.

For savings accounts, Regulation D mandates certain types of telephone and electronic withdrawals, including transfers from savings accounts up to 6 per statement cycle. If you exceed the transaction limit, the bank may charge you a fee, deny future transactions, convert it to a checking account or even close your account.

However, the rule applies only to certain transactions, such as:

• Automated, pre-authorized transfers, such as overdraft protection or automated bill payments
• Online account transfers
• Phone transfers or withdrawals
• Debit card transactions

You can avoid getting into trouble with Regulation D by accessing your money with transactions that are not limited, such as:

• Withdrawals made in person at a local branch or ATM
• Withdrawal requests made by mail
• Withdrawal requests made by phone with funds mailed to the depositor instead of being directly disbursed

Checking vs. savings account: How to choose

Selecting a checking or savings account depends on your individual goals and objectives. In most cases, it’s necessary to have both types of accounts. For minimal interest but convenience and frequent access to cash, a checking account is the way to go. Savings accounts are better suited for saving over the long term.

Having both types of accounts can be quite complementary to paying everyday expenses and also keeping an emergency fund or meeting long-term savings goals. Sometimes, banks will waive a monthly fee if you link your checking and savings account. The drawback to this is that you might not find your best checking and savings account interest rates and terms by using the same bank.

In short, it’s best to do your homework and shop around for the checking account versus savings account with higher interest rates and lowest bank fees. There’s no one-size-fits-all solution, so it pays to find the combination that best suits your objectives and lifestyle.

Find savings and checking accounts with high APYs

Rates vary so it’s important that you shop around for the highest APYs. Here are some of your options.

Avoid checking or savings accounts with fees

When shopping around for a bank or credit union for your checking or savings account, make sure to review the fine print to look for fees. If the financial institution charges a maintenance fee, keep shopping. Never pay fees, there are simply too many good options that won’t charge you to hold and access your money.

Do I need checking and savings accounts at the same bank?

The simple answer is no, but there are reasons for and against the practice. Having your checking and savings accounts at the same bank can simplify money management by putting your balances within the same online banking dashboard or statement. You can also usually transfer money between accounts instantly.

However, you may not find your best options within the same financial institution. For example, the checking and savings accounts currently paying the highest interest rates are not from the same bank. If you want to maximize the interest or features you want, you may need to open accounts at different banks or credit unions. The extra steps may pay off in higher earnings.

Do I need multiple savings accounts?

If you have more than $250,000 in savings, the answer is yes. The FDIC and NCUA insure deposit accounts at a given institution up to the legal limit in a given ownership category, such as a checking, savings or retirement account. If you have more than $250,000, you might want to distribute your money between banks or ownership categories for full protection.

What about cash management accounts?

If having separate checking and savings accounts proves to be too much work, you can consider a cash management account, which can be the best of both worlds. A cash management account combines the high interest rates of a savings account or certificate of deposit with the accessibility of a checking account. These hybrid accounts are offered by online-only banks or institutions. Wealthfront currently pays a 0.35% APY on its cash account with unlimited transactions and no minimum balance.

Whether you choose a checking, savings, cash management account or combination, make sure you shop around for rates that will fit with your financial goals and understand the terms and requirements. The purpose of a bank account is to keep your money safe while you build wealth. And your account should be furthering your goal instead of depleting it.