Eli5: What is the difference between a savings and chequing account?


So I had a meeting with a financial advisor not long ago, and she strongly recommended i set up a chequing account for my payroll to go into, as opposed to it going directly into my savings account like it always has been. I said yes without really thinking it through, but…before I talk to HR about where they deposit my payroll, what is the difference between a chequing account and a savings account? This is for Canadian banking btw.

In: 4

Generally speaking, a checking account is meant for you have quick access to your money on a regular basis. There are typically no withdrawal limits but you get no interest. In other words, it’s an account you keep money moving into and out of a lot for things like paying bills, making purchases…etc.

A savings account is more of a place to park you money for a longer period of time. In other words, it’s a place to *save* your money. They typically have transfer limits so you can’t constantly be making deposits or withdrawals, but they money accrues interest as it sits in the account. The interest is very small, but it’s interest nonetheless.

This is not financial advice for you, so do not take it as such, but for the average person, it’s generally ideal to keep some amount in your checking account at all times to cover your regular purchases and expenses, and then keep the rest in savings. Then you can move money from savings into checking every so often to keep enough money in your checking account.


Note that the above is just the general rules. You should check with your bank to find out the specifics of how each account works at that bank and what kinds of rules, restrictions, and benefits they have on each type of account.

These days? Very little.

Theoretically, a savings account has limited access and the slower cash movement means the balance is more predictable for the bank so it’s less risky for them to use it for lending purposes. In turn that means they can offer interest on however much you have stashed in the savings account.

That worked fine until the rise of e-banking. If you had to actually go to the bank to move funds around you’re just not going to very often, but if it’s just log in and hit a button? Yeah.

Interest rates on savings accounts, if that bank even offers it at all, are generally pretty low. You can get better rates in truly limited access bank products like CDs (certificate of deposit) or products with a high minimum balance requirement (like most Money Market accounts)

These days the biggest difference between a checking account and a savings account is that you can get a debit card issued for your checking account. Check with your bank to determine if there’s any more restrictions on a savings account.

Checking accounts are meant for more regular inflows and outflows of money, meaning there may be more variability in balance. Savings accounts are more stable in their balances, which allows banks to pay interest on them as they can use those deposits to make loans bringing in more interest to the bank than they pay out to account holders. As such, checking accounts typically have limited on transactions a month, so if you’re paying rent, utilities, credit cards, etc. it may be more transactions that you’re allowed for a savings account.

You should check out /r/personalfinancecanada for questions like these!

I assume you are talking to a big bank like RBC, TD, CIBC etc.? If so, the savings account they will offer you will provide a small amount on interest on your deposits, but you will be limited/charged on the number of transactions you can make with that account. The chequing account will give no interest, but you’ll be able to make more transactions.

I would recommend not using the savings accounts offered by the big banks. Instead you can check out High Interest Savings Accounts at small online banks, such as EQ Bank, Motive Financial, Tangerine, etc. Those accounts will have much higher interest for your savings. For example Motive is offering over 4% right now. But you may be even more limited on number of transactions per month (without paying a fee) with these accounts. So it’s best for parking money you don’t need in the short term.

I don’t see people mentioning the primary reason to keep a separate savings and checking account: protection from theft. Ideally you should be using a credit card and paying it off out of your checking account, which is the safest way to handle day-to-day transactions, but if you are someone who doesn’t want to use a credit card and you regularly pay for things with a debit card, having that card attached to a checking account where you only keep a little money limits how much can be stolen out of it if you lose your card, get defrauded, etc. If you’re keeping all of your money in one big account then the damage that someone else can inflict on you is way bigger. Sure if you get your money stolen the bank and government will probably get it back to you, but that’s a process that can take weeks or longer.