Why you need both checking and savings accounts (2024)

February 29, 2024

Today, there are so many ways to manage your money that you may wonder whether you need traditional checking and savings accounts at all. Checking and savings accounts are still two of the safest and easiest ways to manage your money. Here’s a brief explanation of the two most common types of bank accounts, why to have them, and how to get started.

What is a checking account?

A checking account is a type of deposit account that allows you to deposit money that you can then draw from to pay bills or make purchases. These may also be called transactional accounts. In the days before online banking, most people paid bills and other expenses by writing checks, which is where the name “checking account” originates. These days, most people rely on online bill pay, debit cards and even apps like Apple^® and Google Pay^® instead of checks, but the account they’re pulling funds from is still a checking account.

Why do I need a checking account?

• These accounts keep your money safe: Most traditional banks pay for FDIC (Federal Deposit Insurance Corporation) insurance, which means that in the unlikely event of a bank failure, your money is insured at no cost to you to at least $250,000 per depositor per FDIC-insured bank. FDIC deposit insurance is backed by the full faith and credit of the United States Government. Some banks also provide fraud protection and offer overdraft protection on checking accounts, so your money is more secure than on a peer-to-peer payments app or stashed in cash at home.
• They make managing your finances easy: Many checking accounts include free tools like online banking, bill pay and budgeting assistance. In a few quick steps, you can ensure that important bills get paid on time, every time, or set up email and text alerts so you know when your balance gets below a certain threshold.
• They offer the most flexibility: Full online access to your account and a free debit card means you can manage your finances from anywhere.
• They help you avoid transaction fees: Some small businesses and government sites prefer being paid by check, so charge a transaction fee of 1.5% and 3.5% if you use a credit card. Writing a check can save you money if you're making a large purchase or interacting with small businesses on a regular basis. In addition, some small businesses may not accept online payments at all, and writing a check ensures you have an official record of the transaction, unlike paying in cash.

What is a savings account?

A savings account is designed to help you set aside and grow savings for emergencies or short- to medium-term goals like an upcoming vacation or a down payment on a car. Savings accounts are usually interest-bearing, meaning that the bank pays you interest on any money in the account. You cannot write checks out of a savings account; instead, when you’re ready to access the funds, you transfer them from your savings account to your checking account or to another entity via an electronic fund transfer.

Why do I need a savings account?

• They earn interest: Savings accounts are named that for a reason — they’re designed for you to save your money versus spend it, and banks pay you interest on savings accounts. These rates vary over time; you can check the FDIC’s website to see what rates are today.
• You can see your savings add up: Since a savings account is designed to help you save and since they have limited transactions as compared to a checking account, it’s much easier for you to see how much you’re saving over time toward a specific amount or goal. Some people even set up multiple savings accounts for different purposes, like having one dedicated to saving for a down payment on a house and another that functions as a rainy day or emergency fund.
• They help establish and maintain financial discipline: Setting money aside — in a different account than your day-to-day spending — can help establish financial discipline and ensure that you have what you need when the unexpected happens.
• You can automate your savings: You can increase your savings more quickly by automating monthly deposits. Setting and forgetting often allows you to save more money than you would by manually moving funds from one account to another each month.

What are the main differences between checking and savings accounts?

• Checking accounts allow you to manage your day-to-day finances like paying bills, receiving direct deposits, and paying for expenses like dining out.
• Savings accounts are for storing funds that you don’t want to access on a regular basis. The money in savings accounts typically earns interest, so the more you save, the more you earn.
• A good financial strategy is to use both types of accounts in tandem, moving funds from savings to checking for big purchases like vacations or home improvements.

How do I open a bank account online?

At most banks, you need everything below to open an account:

• An email address
• Your Social Security number
• Your mother’s maiden name
• Your current address
• Your citizenship status and employment status
• Two forms of identification (ID)

If you don’t have a bank account yet, there’s no reason to wait. Opening an account online takes just a few minutes and can get you on the right footing to a brighter financial future today.

Want to learn more?

All FDIC-insured banks should have detailed information about how to open an account on their public websites. If you’re interested in opening a checking accountor a savings accountonline with Commerce, you can read up on all your options here.