A checking account is where individuals keep cash for immediate needs, such as ATM withdrawals. Savings accounts are where individuals can safely store money for savings goals and get a return. Some savings accounts, however, can have withdrawal and transaction limits, with certain banks still imposing Federal Reserve Regulation D rules on accounts. Various institutions have created alternatives to traditional savings accounts offered by banks to give individuals greater access to their money and offer a higher return, such as cash management, hybrid, and super-high-yield accounts.
Checking accounts are great for getting cash out of an automated teller machine (ATM), but that’s about it. Even then, who carries cash anymore? Leaving more than $500 in your checking account means your money is wasting away.
So, what’s the alternative? Are savings accounts any better to help you maximize your money? In this article, we’ll detail how to make your money work for you and the checking and savings account strategies you should be using.
Checking vs. savings accounts
Most people have a checking account, which they use for everyday spending and paying bills. Many of those same people generally have a savings account, usually with the same bank, that stores money for emergencies or upcoming major purchases.
However, technology and the rise of financial technology (fintech) companies have blurred the line between checking and savings accounts.
For the most part, consumers no longer have to keep more than a few hundred dollars in their checking accounts. These days, most savings accounts offer immediate access to funds while offering you an advantage: interest.
The most advantageous strategy is to keep enough money in your checking account should you need immediate access to cash via an ATM. Other than that, you can generally pay bills via your savings account and use credit cards for additional everyday spending.
Are savings accounts better than checking accounts?
For saving money and earning a return, savings accounts tend to be better. You’ll undoubtedly need both, but savings accounts are your answer if you're looking for a safe place to store savings and earn interest.
They’re great for storing a chunk of cash you can’t afford to lose, such as a home down payment or wedding funds. The critical things for a savings account to be effective are reasonable interest rates, safety, and unrestricted access to funds.
How to use both your accounts effectively
Most people still use checking accounts to access the funds they need daily. However, keeping more than just what you need in the short-term in your checking account means losing money — even more nowadays since inflation is pushing 10%.
How much money you should have in your checking account is a personal choice. However, as mentioned, if you’re looking to maximize your budgeting and earning capabilities, only a few hundred dollars are needed if you have other aspects of your savings goals in place.
Most people have $500 or less in their checking account. It’s important to note that some banks have minimum balances that you have to keep to avoid monthly fees. Savings over and above this instant-access cash will do better in a dedicated savings account.
How to choose a savings account
When picking a savings account, you should look at three key things: the interest rate, ease of access to funds, and fees. The best savings vehicles offer higher-than-average yields, the ability to make easy online transfers, and no monthly fees. Note that the national average yield on savings accounts is 0.30% as of December 2022.
But there’s another big “gotcha” to watch out for with savings accounts — excessive withdrawal fees.
Regulation D and savings accounts
Regulation D, put in place by the Federal Reserve, sought to limit the number of withdrawals from savings accounts. Under the rule, withdrawals from savings and money market accounts (MMAs) were limited to six per month — additional withdrawals were subject to a fee.
Reg D covered almost any online transfer from a savings account, such as overdraft transfers to checking accounts and automated clearing house (ACH) withdrawals. In April 2020, the Federal Reserve suspended this rule; however, many banks still impose the regulation and charge excess withdrawal fees.
Bank of America charges $10 per withdrawal if you go over six in a month. Chase charges a few for excessive withdrawals at $5 per withdrawal. Both banks charge monthly service fees unless you jump through some hoops. So assuming you get hit with $8 per month in service fees and $20 per month for withdrawals, it’d take a lot of savings to break even if you’re getting about 0.1% on that account - $336,000, to be exact.
Savings accounts are great, but most old-guard banks and even some new-age fintech companies are still major gatekeepers of your money. For example, if you continue to make more than six withdrawals from your savings account each month, most banks reserve the right to close or change your account type.
Pros and cons of checking and savings accounts
The big benefit of checking accounts is that you can have unlimited transactions in and out. Of course, the lines get a bit blurry after that. You can get a checking and savings account that'll let you make a direct deposit, pay bills electronically or via check, transfer money to a different bank, and give you a debit or ATM card.
The things to consider are that most checking accounts don’t earn interest and may charge monthly service fees. Savings accounts may also have monthly fees and may have withdrawal limits.
Checking accounts pros:
- Unlimited transactions and withdrawals
- Debit card access
- Access to ATMs
- Check writing
- Mobile check deposits
Checking accounts cons:
- Earns little-to-no interest
- Can come with monthly fees
- Overdraft fees
- Cashier’s or certified checks
Savings accounts pros:
- Earns interest
- Can set up overdraft protection for checking accounts
- Direct deposit capabilities
- May come with a debit card or check writing
Savings accounts cons:
- Potential withdrawal limits
- Excessive withdrawal fees
- Monthly fees
- Lower interest offered compared to fintech accounts
At the end of the day, if you’re wary of banks and frustrated by near 0% interest on your savings — you can do better. Thankfully, fintech has opened the doors to several savings-type accounts that were inaccessible just a few years ago.
Alternatives to regular savings accounts
With all that in mind, you’re not beholden to the bank or institution where you have a checking or savings account. There are myriad options for storing extra cash — and getting paid much more than most banks offer.
The best alternatives to regular savings accounts include:
- Hybrid accounts — checking and savings accounts in one (such as SoFi)
- Cash management accounts by fintech (such as Betterment or Wealthfront)
- Higher-yield accounts, such as Tellus, which can offer 4.00-5.12% APY
Hybrid accounts blend checking and savings accounts into one. You’ll generally have a debit card just like a checking account, but you also get the higher interest rates offered by a savings account. Online banks tend to offer these accounts and can pay the higher rate for checking-like accounts, as they don’t have to maintain a network of branches and ATMs.
Cash management accounts are very similar to hybrid accounts — and are available at online-only banks or financial institutions. These accounts help streamline your money — you can make unlimited transactions and still earn interest. Many cash management accounts will offer much higher rates than savings accounts.
You’ll also get all the benefits of a checking account, such as check writing and mobile check deposits. But you won’t have in-person customer care, as many fintech companies don't operate branches. If you’re already using an online-only bank, it’s less of an issue. These companies offer virtual and phone assistance.
Cash management accounts are an easy way to combine checking, savings, and brokerage accounts in one place. In addition, they offer benefits you won’t get with savings accounts. These include the same benefits as most checking accounts, including debit cards, fee-free ATM use, and no monthly fees.
Some of these accounts also offer other benefits generally not offered by checking accounts, such as “round up” investing, early access to your direct deposit, and a line of credit tied to your portfolio. Again, all with no monthly fees.
There are opportunities for passive income while staying out of the stock and crypto markets. Traditionally, higher-yielding opportunities with little risk were often out of reach for everyday consumers and reserved for private wealth management clients at large banks.
However, that’s no longer the case. Access to preferred income doesn't mean you have to wade into sophisticated strategies, such as derivatives or preferred stock.
Tellus, a fintech company, turns your savings into passive income. This passive income comes without the complexities that most high-net-worth individuals have to contend with to get decent yields. Using smart technology and real estate, Tellus offers 3.95% to 5.50% APY to consumers seeking safer harbors for their savings than the volatile stock market affords.
Tellus powers your interest payments through residential real estate lending. It uses the interest generated by high-quality single-family rental (SFR) mortgages to generate income and then passes on a portion of that income to its savers through daily interest payments. So Tellus’ money is backed by US residential real estate, but it also holds additional cash on its balance sheet proportional to every dollar of customer deposits as a “liquidity buffer.”
Tellus offers three high-yield cash accounts products:
- Reserve Account allows you to jumpstart your savings with an interest rate of 5.50% on balances up to $2,500. So say you move $2,500 from a traditional savings account into a Tellus Reserve Account — you’ll likely be getting interest that’s many times over what you’re collecting in your savings account. For example, if you’re earning 0.17% in interest with your traditional savings account, you’d collect $4.25 in interest in a year. With the Tellus’ Reserve Account, you’d collect $141.34 in interest on that same balance in a year. Yeah. Wow.
- Boost Account, an account for higher balances, offers a 3.95% base interest rate regardless of the balance — in other words, no balance limit. Users can also accelerate their earnings by claiming Free Daily Boosts (think of these as ‘APY rewards’ or ‘APY power-ups’). It’s possible to earn up to 7.90% APY for limited periods.
- Vaults lets you lock in an awesome rate for a fixed duration — earn 4.05% APY with a 3-month Vault, 4.65% APY with a 6-month Vault; 5.00% APY with a 12-month Vault; or 5.12% APY with a 24-month Vault. Plus, there’s no balance cap with Vaults — deposit as much money as you like into a Vault.
Tellus lets you take advantage of a key budgeting tool known as bucketing. You create separate goals for the big purchases you’re saving for. For example, you might have a bucket for a “Vacation Fund,” one for “Emergencies,” and another for a “Downpayment on a New Car.” Tellus makes this savings technique super simple with Stacks, personalized sub-accounts that allow you to allocate cash based on your goal while still earning 3.95%+ APY.
Other options: money market accounts and CDs
Money market accounts act as high-yield checking accounts that generally come with checks and a debit card. However, there are generally balance requirements, which may also come with withdrawal limits. Money market accounts are very similar to savings accounts.
What about certificates of deposit (CDs)? These accounts lock in your money for set periods (months or years) — meaning you have no liquidity should you need it. You’ll have to lock in your money with a CD for an extended period, such as five years, to get a competitive rate. Even then, the rate is generally less than 1% and gets even less if you opt for a six-month or one-year CD. Then, if you do have to withdraw early from a CD, you’ll be hit with an early withdrawal fee.
Saving vs. investing
Ideally, savings should be steady and liquid — meaning your account will not fluctuate in value, and you can readily access funds without a long delay or major fees. If you’re putting your savings in high-yield dividend stocks, real estate investment trusts (REITs), peer-to-peer (P2P) lending platforms, bonds, or Treasury inflation-protected securities (TIPS), you’re not saving — you’re investing. Investing comes with the risk of losing your funds and limited access to your money.
Many savings accounts provide safety and quick access to funds. But a typical savings account is one of many (or best) options for earning interest, especially when inflation is rampant.
For context, inflation is over 7%. So leaving your cash in a savings account and earning a fraction of that is like losing money. However, more aggressive approaches to hedging inflation, such as investing in TIPS, mean you’ll lose out on liquidity.
The value of higher interest
Saving your money in high-interest accounts can add up quickly — meaning your money will increase faster with no added risk. The annual percentage yield (APY) offered on high-yield savings accounts can be over 3.00%.
Consider a high-yield savings account that offers an APY of 3.00%. You’re hoping to spend the next five years saving money for a home down payment. If you make an initial deposit of $2,500 into that account and then contribute $500 a month, you'll have achieved a return of $2,727.4 over those five years.
Now consider a Tellus account, which offers a minimum of 3.95% APY. Using the Tellus account as your savings vehicle would have generated an additional $984 in interest over the same period.
If your savings account is a regular savings account like most traditional banks offer, where the current APY is 0.30%, the numbers are even more nauseating. Consider that with an account earning 0.30%, you’ll earn just $264.79 from our example above (and this assumes daily compounding interest, not monthly compounding interest which is very standard with big banks). With Tellus, you’d get over 13x the return over those five years.
Where to save
You’ll need both a checking and savings account, but what is a “savings account” these days is very different from what the banks of old offered. Many savings accounts at banks limit when and how often you can access your money — not with Tellus. Tellus is not a savings account; it’s better! Get nearly immediate access to your money and a yield up to 18x the average interest rate on savings accounts while avoiding the volatility of the stock or cryptocurrency markets. Learn more about how Tellus works here.