Chequing vs Savings Accounts: The Difference and When to Have Both

A chequing account (a checking account, in the US spelling) is for day-to-day transactions, and a savings account is for money set aside to earn interest. FCAC says a savings account pays interest on the money you deposit, also known as the principal, and that many people who open one also have a chequing account for their day-to-day banking, so for many people the question is how the two work together.

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

The two differ on interest, fees, transactions and access.

What is a chequing account for?

A chequing account carries the everyday traffic: bill payments, debit card purchases, transfers between accounts, cheques and pre-authorized debits. Its fees depend on the account or package: a monthly fee that covers a set number of transactions, a package with unlimited transactions, or an account where each transaction is paid for, and some accounts waive the monthly fee for a minimum monthly balance. Institutions that signed an agreement with the federal government offer basic low-cost and no-cost accounts.

How a chequing account and its debit card work is on the bank accounts front; accounts are compared across banks on best chequing accounts and no-fee chequing accounts.

What is a savings account for?

FCAC says any interest you earn each month goes directly into your account. You don't usually pay monthly fees to have a savings account. You may still have to pay fees for transactions like withdrawals or transfers. Most savings accounts offer a limited number of transactions. Interest can also depend on the balance: Some accounts need you to keep a certain amount in the account to earn interest; in some cases at least $1,000 before it pays interest.

CDIC says a high interest savings account (HISA) is a savings account that can offer a higher interest rate than a regular savings account; savings rates by bank are on the high-interest savings page. The kinds of savings account and how interest is worked out are on the savings front, and money that can be locked in for a fixed term is covered on GIC vs HISA.

How much does the interest difference come to?

What a balance earns in savings rather than chequing is worked through in the savings front’s example and its interest calculator. Regular and promotional rates by bank are on the savings rates page.

Why do many people have both?

In a two-account setup, day-to-day spending runs through chequing and money set aside sits in savings. Money can go to savings by pre-authorized transfer, and money in savings may have to be moved back to chequing before it can be withdrawn, which may take extra time. How transfers between your own accounts, and between banks, work is on ways to move money.

On a package whose monthly fee is waived above a minimum balance, the money kept there to meet it earns little or nothing, because chequing accounts usually pay no interest on deposits. If that balance is more than would otherwise sit in chequing, an account with no monthly fee is the other route.

FCAC notes that keeping enough in chequing to cover bill payments and cheques helps avoid NSF fees or overdraft protection charges. The size of a cushion to keep in savings is the emergency fund page’s subject. Holding accounts at several institutions is the subject of more than one bank account.

Are there accounts that work like both?

Some everyday accounts pay interest on the balance and charge no monthly fee: one online bank says its account “acts like chequing, earns like savings”, and one fintech describes a no-monthly-fee chequing account that earns interest. The rate can come with conditions: the online bank pays a base rate and a higher one with qualifying recurring direct deposits, and the fintech’s rate depends on how much the client holds with it. Some features may be missing: the same online bank says its account is not for someone who needs cheques, bank drafts, in-branch support or cash deposits.

The no-fee chequing accounts page lists such accounts with their interest terms, and online banks and fintechs are compared on their own page.

Is a savings account the same as a TFSA?

No: the CRA says a TFSA “can be a simple savings account or a more complex investment account”, and a deposit TFSA at a bank or credit union works like a savings account or a GIC. A “TFSA savings account” is that deposit kind of TFSA, and TFSA savings accounts are compared on their own page, with the TFSA guide explaining the choice.

The tax side differs. You usually have to pay income tax on interest from an ordinary savings account. Interest and other investment income form part of your total income and must be reported on your return; report interest paid or credited to you in the year even if you did not receive an information slip (how savings interest is taxed). A TFSA is different: The CRA says any income you earn in a TFSA through interest, dividends or capital gains is generally tax-free, even when you make a withdrawal.

To open a TFSA you must be a resident of Canada for income tax purposes, be 18 or older and have a valid Social Insurance Number; where the age of majority is 19, you open it at 19 and keep the room from the year you turned 18. The rest of the rules are in the TFSA guide, and TFSA room has its own page.

Are chequing and savings deposits insured?

The Canada Deposit Insurance Corporation (CDIC) insures eligible deposits at its member institutions if one fails, up to $100,000 per coverage category, principal and interest included, so deposits in more than one category can be covered for more in total. Both kinds of account are eligible deposits: CDIC protects these eligible deposits held in one name: savings accounts, chequing accounts, term deposits including GICs. CDIC says deposits in one name at a member are combined for one coverage limit, so a chequing and a savings account in your name alone at the same institution share it.

Provincially regulated credit unions are not CDIC members. They are covered by provincial deposit insurance or guarantee corporations instead, with limits and rules that vary by province. Federally regulated credit unions are CDIC members. The provinces’ coverage is set out under credit unions on the same page. One fintech that says it is not a bank places its clients’ chequing funds in trust with CDIC member institutions.

Related pages

• Bank accounts
• Best chequing accounts
• No-fee chequing accounts
• Savings accounts explained
• Savings rates by bank
• Opening a bank account
• TFSA guide