Although checking accounts may offer convenience, they’re not usually interest-earning accounts. However, these days, interest-bearing checking accounts are changing the game. They earn interest while ensuring you can withdraw or spend your money when needed.
So, how are these accounts different from traditional savings accounts? And what should you consider when choosing between interest-bearing checking vs savings accounts? This guide covers the key differences between these accounts and offers tips on choosing.
What to know about interest-bearing checking accounts
Interest-bearing checking accounts are like traditional checking accounts in many ways. They let you withdraw money, write checks and make payments using a debit card. You can usually make unlimited withdrawals throughout the month.
What sets them apart is that they pay interest on your account balance. Rates are usually variable, which means they rise or drop based on market rates. These accounts may charge monthly maintenance fees unless you maintain a minimum balance or deposit a certain amount each month. The fees may be noticeably higher than checking accounts that don’t earn interest.
However, for account holders who can meet the bank’s requirements, interest-bearing checking accounts can offer the accessibility of a traditional checking account with the interest benefits of a savings account.
What to know about savings accounts
Savings accounts offer moderate interest to help you grow your money over time. Depending on your bank or credit union, your account balance may earn interest on a monthly, quarterly or yearly basis. Interest rates can vary, and you may see savings accounts with higher interest rates referred to as high-yield savings accounts.
Like checking accounts, you may face maintenance fees if you don’t maintain a minimum balance. Some banks also limit the number of withdrawals you can make each month. Account holders may incur a fee if they exceed the limit.
A savings account enables you to earn some interest while maintaining liquidity. This is why many people choose savings accounts to hold emergency funds or to save for specific goals like a down payment.
Key differences
Here’s a breakdown of the main differences between interest-bearing checking accounts and savings accounts.
Ideal purpose
- Interest-bearing checking accounts: Interest-earning checking accounts give account holders the most flexibility. They can take advantage of interest while having unfettered access to their money. Use this annual percentage yield calculator to understand the exact amounts.
- Savings accounts: Traditional savings accounts are great for people setting funds aside for a financial goal. There’s a lower risk of accidentally spending the money since it’s held separately from day-to-day finances.
Interest rates
- Interest-bearing checking accounts: These accounts may not offer rates as high as traditional savings accounts.
- Savings accounts: Prospective account holders can expect higher interest rates, especially with high-yield accounts.
Transaction limits
- Interest-bearing checking accounts: Account holders typically get unlimited transactions, including checks, debit card payments, withdrawals and online payments.
- Savings accounts: There may be a limit to how many free withdrawals accountholders can make. Account holders may be charged a fee if they make too many withdrawals.
Accessibility
- Interest-bearing checking accounts: Account holders can easily access their funds using checks, debit cards, ATMs and electronic transfers.
- Savings accounts: Savings account holders are less likely to offer debit cards and checks. Account holders can use ATM cards to withdraw funds or rely on electronic transfers.
Making the right choice
Here are a few things for consumers to consider when choosing between an interest-bearing checking account and a savings account:
Fees: Compare account fees to find an account that provides the best value. An interest checking account may sound like a great way to earn interest, but if you can’t maintain the minimum balance, you’ll lose a chunk of the interest you earn to monthly maintenance fees. Since savings accounts permit fewer withdrawals, the account balance is less likely to dip below the required minimum unless it’s an emergency.
Usage: An interest-bearing checking account makes sense if you want an account to manage daily expenses while earning a little interest. A savings account is practical for someone building an emergency fund or saving for a specific purpose.
Minimum balance: Want to avoid account fees by maintaining a minimum balance? Savings accounts tend to have much lower minimum balance requirements compared to interest-bearing checking accounts.
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