Checking vs Savings Accounts: What's the Difference?

If you're trying to decide between a checking vs savings account, it's easy to get overwhelmed with the sheer amount of information you have to consider. What do you use each one for, and how do you open one? What are the different types of checking or savings accounts available? How about eligibility requirements? We'll go over each of these topics in-depth. We'll also walk you through how to open each type of account, and more. You'll know exactly which type of account you need and what it can and can't do for you.



checking vs savings accounts


Everything You Need to Know About Checking Accounts

First up on our checking vs savings account list is the checking account. A checking account is a bank account that you use for your day-to-day cash withdrawals and deposits. You can gain access to your money by writing checks, performing an online money transfer, or by using your debit card.

You can keep your money in your checking account in the short-term or medium-term. If your employer makes direct deposits, they can directly add your paychecks here. You can link your account to other payment apps like PayPal or Venmo, and you can pay your bills from this account. It also tracks all of your deposits and withdrawals to make budgeting easy.

How to Open a Checking Account

Almost all credit unions or banks let you set up your checking account by going to the branch in person or setting it up online. No matter which way you choose, they'll both follow the same general guidelines.


1. Get the Materials You'll Need to Apply

You'll fill out an application to open your checking account, but you'll need three materials before you can complete it. We outlined them below.

  • Proof of Address - For an in-person account opening, bring a utility bill or lease with your current address and your name on it. 
  • Identification - If you open your account at the branch, you'll most likely need two types of identification. This could be a state ID, driver's license, social security card, birth certificate, or a passport. If you apply online, you'll input your date of birth, social security number, and your government-issued ID number like you'll find on your driver's license. For joint accounts, both parties must supply these identifiers. 
  • Opening Deposit - For a basic checking account, you'll typically need a minimum opening deposit that ranges between $25 to $100. Interest-bearing checking accounts may be higher. If you open your checking account online, you can make your deposit with a debit card, credit card, or an electronic transfer. 

2. Fill Out the Application

When you get all of your materials in order, it's time to fill out the application. You'll work through the application online or fill out a paper form in person. The bank will usually run a credit check that pulls your past banking history to decide whether they'll let you have this account or not. If they approve you, you'll get documents with your account number and the terms of the account.

3. Sign the Account Paperwork

You'll get a signature card that the bank will match your signature to each time you write out a check. You can typically fill out and sign this paperwork online, but some banks or credit unions will require you to travel to a physical branch and fax, mail, or sign the signature card in person.

4. Make an Opening Deposit

You'll make your opening deposit into your checking once the bank or credit union approves it. There could be a few day hold before the money is available for use in your account. During this holding period, you won't be able to make withdrawals, write checks, or use your debit card.

5. Get Your Account Tools

After the financial institution finalizes your checking account, you set up your account and make your deposit; they'll mail you your account tools. Depending on which you chose, this could be personalized checks, deposit slips, and an ATM or debit card. You'll have to activate your debit card and set up your account access before you use it.

6. Set Up Your Direct Deposits

To avoid any monthly fees, you'll want to set up direct deposits like your payroll or a government check. If you want your payroll deposited into this account, you'll have to arrange for it with your employer. You can set up your bills to automatically come out of the account too.


Specific and Common Uses of a Checking Account

A checking account has several specific and common uses attached to it. Since there is no limit on how many deposits and withdrawals you can make each month, you can use your checking account for:

  • Daily Expenses - Once your money is safely in your checking account, you can use your debit card or checks to pay for your daily expenses. Your debit card will most likely be Visa or MasterCard, and almost every vendor accepts it. 
  • Bill Payment - Being late on your bills can damage your credit score, but it also puts you at risk for expensive late payments, interest, and fees. A checking account lets you set up automatic payments each month. 
  • Fraud Protection - If you carry cash around and someone steals it, it can be very difficult to prove it and get it back. Checking accounts have fraud protection built-in. If someone gets your card or checks and pulls money from your account, the bank can help you recover it. 
  • Direct Deposit - If you get a traditional check, you have to go to the bank and cash it before you can use it. With direct deposit, your employer sends it straight to your account. You typically have access to the funds the same morning to use; however, you need them. Additionally, direct deposits can help waive a few fees. 


What You Can and Can't Do With a Checking Account

You can use your checking account for daily transactions, and you can also store your money in a checking account. However, your money won't grow with interest very fast in this type of account. You also can't use your checking account if you overdraft it. Once you go into an overdraft, any money you put in will automatically go towards filling this overdraft.

You can use your checking account to set up automatic payments. This removes a lot of the stress that comes with paying your bills and worrying about missing a payment. However, you do have to ensure that you have enough money in the account to cover your automatic payments and expenses. If not, it'll overdraft.


Different Types of Checking Accounts

There are several types of checking accounts available. Which one you choose will depend on your unique wants. We've outlined them for you below.


Free Checking Account

A free checking account is exactly what it sounds like. It has no monthly fees attached to it. However, it can charge fees for any overdrafts or for certain types of bank services. They're very basic, and your money won't gain a lot of interest sitting here.


Online Checking Accounts

Online banking and financial institutions are growing every year due to their convenience. You get access to your money 24 hours a day, 7 days a week. There are usually no monthly fees with these online checking accounts, and you can get a debit card to have instant access to your money.


Joint Checking Account

Married couples or someone with dependents usually has a joint checking account. Multiple people can have access to this account, and each one can have a checkbook or a debit card to pull money out or make deposits.


Student Accounts

Younger people or people enrolled in high school or college can get a student checking account. These checking accounts have no lo low minimums, low fees, and special deals. Once you stop being a student, you transition to a different account.


Business Checking Accounts

Business checking accounts come designed to handle large amounts of money and larger financial transactions on a daily basis. This account is where banks offer business lines of credit too.


High-Yield Checking Accounts

Also called a money market account, these checking accounts offer higher interest rates. They have a higher minimum account asset limit, and some of these accounts do put a strict limit on how many monthly transactions you can make.


Eligibility Requirements for a Checking Account

There are generally very few eligibility requirements for opening and having a checking account. You have to be at least 18 years old unless you're going to be a dependent on someone else's account. You have to be able to prove your identity.

A bank may turn you down for a checking account if they run a special credit check and see that another bank closed your account out due to you mismanaging it. An example of this would be having unpaid overdrafts. Another reason why they may turn you down is due to having convictions on your record like financial crimes or fraud.

Everything You Need to Know About Savings Accounts

A savings account is what many people's family start for them when they're younger, and they turn it over to you when you turn 18. Unlike a checking account, a savings account is better for the long-term storage of your money because they have higher interest rates.

Most savings accounts only allow a few withdrawals a month, and you typically can't leave no money in your savings. You have to leave some portion of your money in the account to keep it open and in good standing. You can link your account to PayPal to deposit additional funds.

How to Open a Savings Account

When you decide that you'd like to open a savings account, you'll have to choose how you'd like to go about it. Some credit unions or banks let you apply online, in person, or over the phone. The process usually takes between 10 and 20 minutes from start to finish.

1. Get the Materials You'll Need to Apply

Just like opening a checking account, you'll need materials in order to apply and get your savings account. You'll need your social security number and the number listed on your government-issued ID like your passport number or your driver's license number.

2. Fill in Your Contact Details

Along with putting in your ID number; you'll have to add in your contact information. Fill in your first name, last name, phone number, and address. You typically have to put in a US address. The form may ask you to input your date of birth and your email address as well.

3. Choose Your Account

Let your bank or credit union know if you're going to open an account on your own or if you want an account with someone else. If you plan to have someone else on the account, you'll need all of their information as well, including their ID, name, social security number, and contact information.

4. Accept the Account's Terms and Conditions

The terms and conditions will outline the account's fees, interest calculation, and liabilities. Ideally, you'll want to pick out a savings account that has low or no monthly service charges with higher interest rates. Double-check before you accept the terms and conditions.

5. Pick Your Initial Deposit

If you want to add your initial deposit and you're opening your savings account by phone or online, you can use an existing account and input the routing and account number. For in-person deposits, you can write out a check or give cash. Many banks or credit unions require a minimum deposit between $25 and $100. The sooner you deposit money, the sooner you can earn interest.

6. Submit Your Completed Application

When you apply online, the financial institution will usually acknowledge it within minutes. The bank can take between two and five business days to verify your account and let you deposit more money. Once the bank clears the account, you can set up automatic transfers from your checking or set up direct deposits. Scheduling regular deposits is a great way to build your savings with no effort on your part.

Specific and Common Uses of a Savings Account

There are dozens of ways you can make your savings account work for you. As long as you have money in it, it'll add interest and grow it. We've outlined several ways uses of a savings account below.

College Fund

One of the most popular uses of a savings account is to set up a college fund for your kids. Many parents open a savings account when their child is born and add money to it every month or year. The interest rate helps the money grow and pay for college. 529 accounts are specifically for college funds, and they grow without taxes.

Emergency Fund

Everyone should have an emergency fund, and a savings account with a high-interest rate is a great way to grow one. You can schedule automatic deposits each time you get a check into your emergency fund and keep building it until you need it. 

Long-Term Storage

Many people use a savings account as a long-term storage option for their money. Not only does it grow with interest, but most savings accounts are FDIC insured. Should something happen to the money, the bank will replace it. 

What You Can and Can't Do With a Savings Account

A savings account is a long-term storage option for many people. They make one or more deposits a month and don't withdraw the money back out if they can help. The more money you leave in, the more the interest will help it grow.

You can't use your savings account for your daily expenses. Most banks and credit unions cap the number of withdrawals you make out of this type of account. If you try to do more, you'll have to go in and do it in person or ask a teller to override the limit over the phone manually.

Different Types of Savings Accounts

You'll find that there are many options available for savings accounts. The type you choose should match your long-term goals and needs.

Savings Deposit Accounts

This is a simple bank account that bears interest on any money in the account. You can withdraw money at any time during the month, but it has a maximum cap of six withdrawals per month. This limit includes transfers to other accounts.

High-Yield Savings Accounts

Savings accounts that pay a higher interest rates are high-yield accounts. To qualify for this type of account, you usually have to keep your account above a higher minimum balance.

Joint Savings Accounts

This is a savings deposit account with two or more parties authorized to make withdrawals or deposit money. The FDIC balance limit directly relates to the number of people on the account, and it usually caps at $250,000.

Student Savings Account

Designed especially for younger people in school or college, these accounts usually have lower minimums, low to no fees, and have more flexible terms.

Certificates of Deposits

Better known as CD accounts, you have to commit whatever money you put in for a set term that can range from a few months to a few years. In exchange for locking your money into this account, you'll earn a higher interest rate. If you have to withdraw your money before the term is up, you'll pay the penalty.

529 Accounts

This is a college savings account. They're not tax-deductible, but you use the money to pay for higher education expenses. They can grow tax-free, and you can withdraw money to use for education without paying taxes on it too.

Retirement Plans

Accounts like Roth IRAs, 401ks, and IRAs are all examples of savings accounts. Each account has different terms and rules associated with it, and the one you pick will depend entirely on your wants and needs. Your employer may designate one for you as well.


An HSA is a Health Savings Account. You make tax-deductible contributions to this account, and you use the money to help you pay for health expenses. You can use it for copays or to cover your deductible. You have to have a high deductible health plan to qualify for this account.

Eligibility Requirements for a Savings Account

Generally, there are few eligibility requirements you have to meet for opening and having a savings account. You generally have to be 18 years old to qualify for this account. If you're not, someone over 18 can add you to their savings account. You also have to be able to prove your identity and have a US-based address.

Checking vs Savings Accounts - Which Do You Need?

Now you know what checking and savings accounts are, the common uses for both, what you can and can't do, different types, and how to open each one. Ideally, you'd have both accounts because they're both very useful tools for helping you build your finances.

If you're ready to open a checking account, savings account, or both, take a look at our checking and saving account options at 121 Financial, today. We're happy to answer your questions and help you choose the best account to suit your needs.



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