Checking Account vs. Savings Account: Which Should You Pick?

More than 9 out of 10 American adults have either a checking or a savings account. The benefits are obvious: easy money transfer and storage. Checking and savings accounts are the peanut butter and jelly of personal finance: useful separately, but best when paired.

Consider opening a checking account to store and transfer cash you may need tomorrow. And consider opening a savings account to earn interest on cash you'll keep for the next one to five years. Many folks -- myself included -- own one of each.

That's the gist of it. Below, we'll answer some of your most pressing questions: Why are checking accounts better than savings accounts sometimes, and vice versa? When should you open a checking account vs. a savings account? Read on to get answers.

Basics of checking accounts

Checking accounts help you spend and store money you might need tomorrow. They usually give you multiple deposit and withdrawal options so you can add and withdraw funds easily. Money kept in your checking account earns you little interest, if any.

Features of checking accounts

Checking accounts typically offer the following features.

The good

Convenience: Banks and credit unions give you several ways to move your money in and out of your checking account, including:

• Debit cards
• Checks
• Online banking

Few limitations: Checking accounts generally let you withdraw funds as often as you want. Savings accounts are typically more limited (see below).

FDIC insurance: All the checking accounts at top banks are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per person per bank. That means if your bank goes under, the FDIC will reimburse your lost funds up to a maximum of $250,000.

The bad

Little to no interest: Checking accounts typically don't pay you money for hoarding cash in them. If they do pay you, it's probably not much compared to top-tier savings accounts.

Fees: Checking accounts typically charge more fees than savings accounts. (They're more feature-rich.) Here are a few common checking account fees:

• Monthly maintenance fee: A monthly fee you must pay to keep an account open. Many online banks don't charge these. Banks that do charge maintenance fees typically waive them if you meet certain criteria, like by setting up direct deposits to your account.
• ATM fees: You must pay ATM fees to use out-of-network ATMs. These are typically $2 to $3 per withdrawal. ATM owners may charge you additional out-of-network fees.
• Minimum balance charge: Some checking accounts charge you $10 to $12 if your balance drops below a certain amount.
• Foreign transaction fee: If you use your debit card outside the United States, you could incur a foreign transaction fee. This often adds 3% to your purchase. Some banks charge you foreign transaction fees for banking with non-U.S. merchants, no matter where you are when you make the purchase.
• Overdraft fee: Your bank may charge you $35 or so for attempting to withdraw more money than you have stashed in your checking account. Overdraft fees are typically charged by traditional brick-and-mortar banks.

Types of checking accounts

Here are some of the most common types of checking accounts.

Basic checking: Basic checking accounts are bare-bones accounts that typically have few fees and zero balance minimums. They're simple to use and may be less feature-rich than alternatives. For example, they may not let you write checks.

Free checking: Free checking accounts don't charge monthly maintenance fees. They may charge other fees, however, so be sure to read the fine print.

Joint checking: Joint checking accounts may be owned by two or more people. Like basic checking accounts, you can use joint accounts to transfer and store cash easily.

Business checking: Business checking accounts help companies manage funds. Many business owners use basic checking accounts to manage personal finances and business checking accounts to manage business income and expenses.

Student (or minor) checking: Student checking accounts are typically free and may offer student-specific perks. Minor accounts may be opened by underaged users with the permission of legal guardians, and they typically give guardians control over spending.

Online-only checking: Online-only checking accounts are offered by online banks with zero bank branches. They typically charge fewer fees than brick-and-mortar checking accounts.

High-yield checking: High-yield checking accounts break the mold by paying you a higher APY on your deposits. They typically make you jump through extra hoops to open them. For example, they may require you to set up direct deposits.

Rewards checking: Rewards checking accounts send you debit cards that function a lot like rewards credit cards. You earn automatic cash back on your purchases.

Second-chance checking: Banks can close your checking account if you rack up fees and leave them unpaid for too long. Should this happen to you, you may be limited to second-chance checking accounts. These accounts tend to have more restrictions than normal checking accounts.

Basics of savings accounts

Savings accounts help you store money you may need in the next one to five years or so. People open them because they earn you higher APYs on deposits than checking accounts. But savings accounts may limit withdrawals.

Features of savings accounts

Savings accounts typically offer the following features.

The good

Higher interest rates: Savings accounts typically offer much higher interest rates than checking accounts. Online banks tend to offer the highest rates. The best high-yield savings accounts offer rates around 10 times higher than the national average.

Low minimums: Savings accounts typically require low minimum deposits, if any. Think $100 or less to open an account. (It's still "your money," but you must keep it in the account.)

FDIC insurance: Like checking accounts, savings accounts are also usually FDIC insured up to $250,000 per person per bank.

The bad

Withdrawal and transfer limits: Savings accounts limit you to six convenient withdrawals per month, according to Regulation D.

Feature limits: Savings accounts offer fewer features than checking accounts. It's tougher to find savings accounts that offer debit cards and check-writing capabilities.

Types of savings accounts

Read on for the most common types of savings accounts you may encounter.

High-yield savings: High-yield savings accounts offer above-average interest rates. But they're tougher to open than low-yielding savings accounts. They may impose stricter balance requirements or require you to jump through other hoops. They are mainly offered by online-only banks.

Online-only savings: Online savings accounts are often high-yield savings accounts by definition. That's because online banks are more cost-effective than traditional, brick-and-mortar banks, and online banks pass their branch-free savings on to customers like you.

College savings (529 plans): College savings accounts, or 529 plans, help fund higher education specifically; they offer special tax advantages to the holder. Students going to college at least part-time may be eligible.

Health savings accounts (HSAs): An HSA is a special savings account designed to help you set aside money for medical expenses. It's only available to those with high-deductible health insurance plans -- one with a deductible of $1,500 or more for an individual in 2023 or $3,000 or more for a family. Contributions to HSAs reduce your taxable income. HSA funds used to pay for medical expenses are tax free.

Which account should you pick?

Most Americans should consider opening one of each. The cheapest are essentially free and they cover different bases. Checking accounts help you cover everyday expenses, and savings accounts help you build medium- or long-term wealth.

Some online banks even offer a combined checking and savings account. Basically, it's a one-for-two combo. It's typically free, basic, and simple to manage from your smartphone. I like this because you can manage your money in one place, from a single screen.

Determined to stick with one account only? Okay. Chances are, you want to open a checking account. Checking accounts are the more flexible of the two, and they're great for managing money you may need tomorrow. Some even offer you interest on deposits.

But if you're okay with potentially facing limits on withdrawals, you should consider opening up a savings account instead. Savings accounts offer the best rates. They're great for building emergency funds and meeting medium-term goals.

READ MORE: A Beginner's Guide to Banking

Still have questions?

Here are some other questions we've answered:

• Are online banks safe?
• Where should you park your cash?
• How do you open a bank account online?