Should I Keep Money in Savings or Checking?
It’s common to wonder where you should keep your money. Whether you’re new to banking or have had accounts for years, it’s important to understand how your money works in each location. When funds are added, is everything where it should be, and how much is enough? Knowing the different types of accounts may help you choose what works best for your needs.
What's the Difference Between a Checking and a Savings Account?
Both checking and savings accounts are types of deposit accounts. This means that you put money into these, and a bank holds it safely for you. But they're built for different purposes:
- Checking account: This is designed for everyday money. You can use it to buy groceries and pay bills. You can easily move money from this account. You can make deposits and withdrawals as often as you need to.
- Savings account: This holds money that you don't plan to spend right away. It's a secure place to set funds aside. It may earn interest. This is money your bank pays you for keeping your money there.
Here's a simple side-by-side comparison:
| Feature | Checking account | Savings account |
| Purpose | Everyday spending and bills | Setting money aside and growing it |
| Earn interest | Usually little or none | Yes, typically |
| Transaction limits | Usually unlimited | May be limited |
| Best use | Daily use | Emergencies and future goals |
The specific features may vary based on the type of account you choose and your financial institution.
Where’s the Best Place to Keep My Money?
The answer isn’t straightforward, since everyone’s needs are different. But in general, your money will go the furthest when your checking and savings accounts work together.
Your checking account handles your day-to-day needs. Your savings account holds the money you want to protect and grow. The two accounts are supposed to complement each other.
If you’re new to banking, you may want to get started with a checking account. It gives you the most flexibility for everyday needs like paying bills and making purchases. When you’re ready to open a savings account, that can be your next step to invest in your future.
When should I use a checking account?
Your checking account is built for daily use. Here are some common ways to put it to work:
- Getting paid: Most employers can deposit your paycheck directly into your checking account. This is called direct deposit. You can also deposit checks yourself by visiting a bank or using a mobile app.
- Paying bills: Rent, utilities, and phone bills, typically come out of your checking. You can set up automatic payments, send a paper check, or use online bill pay.
- Everyday purchases: When you swipe your debit card at a store or shop online, that money comes straight out of this account.
- ATM withdrawals: You can access cash to have on hand by visiting an ATM.
When should I use a savings account?
Use your savings account for money you don't need to spend right now. Think of it as your financial safety net and your goal-setting tool all in one.
Here are some reasons to put money into savings:
- Building an emergency fund: Unexpected expenses like car repairs, medical bills, or job changes happen. Having money set aside means you don't have to rely on credit cards or loans when something comes up.
- Saving toward short-term goals: Short-term saving might include planning a vacation, upgrading your phone, or working toward a down payment. A savings account is a dedicated place to grow those funds over time.
- Earning interest on your money: When your cash sits in a savings account, your bank may pay you interest. Your balance grows slowly over time. This happens without you having to do anything extra.
How Much Money Should I Keep in Checking vs. Savings?
There’s no correct answer. Your ideal balance depends on your income, expenses, and goals. Here are some general tips:
- Checking account: Keep enough to cover your regular monthly expenses. This includes things like rent, groceries, bills, and transportation. You'll also want a small cushion, so your balance doesn't drop to zero. Running too low puts you at risk of overdraft fees or declined payments.
- Savings account: A common goal is to build an emergency fund. This is money set aside to cover unexpected costs. A traditional target is three to six months' worth of living expenses. But any amount you can save is a meaningful start. Once your emergency fund feels solid, you can use your savings to work toward other goals.
What other account types should I know about?
Once you've established your checking and savings accounts, you might explore other options like:
- Money market accounts: A money market account works a lot like a savings account, but it often offers a higher interest rate. You might need a higher minimum balance to open one, and there may be limits on how many transactions you can make each month.
- Certificates of deposit (CDs): A CD is a savings option where you agree to leave your money in the account for a fixed period of time. It could be anywhere from a few months to several years. In exchange, the bank could offer a higher interest rate than a regular savings account.
- Individual retirement accounts (IRAs): Even if you're already contributing to a 401(k) plan through work, you may also be able to contribute to a traditional or Roth IRA. Contribution limits and eligibility can vary based on your income and tax filing status, so it’s a good idea to review the latest guidelines on IRS.gov.
- College savings accounts: Here are two options to start saving for education. A state-run 529 college plan account offers high contribution limits. A Coverdell education savings account (Coverdell ESA) offers investment flexibility and a contribution limit of $2,000 per year.
Steps to Get Started with a Checking and Savings Account
Managing your money doesn't have to be complicated. Here's a simple starting point:
- Open a checking account for your everyday spending, bill payments, and income.
- Open a savings account to set aside money for your future.
- Keep enough in checking to cover your monthly expenses, plus a small buffer.
- Build your savings gradually — even small, regular contributions add up over time.
- Understand your account's fees and rules so nothing catches you off guard.
When you’re ready, KeyBank is here to help. Open a checking or savings account today. Explore different options designed to support both your day-to-day needs and your long-term goals.