Checking
Checking accounts are designed for regular spending and immediate
needs such as paying bills, covering everyday expenses (e.g., buying gas
or groceries), depositing money (including direct deposit of your
paycheck or other payments you receive) as well as transferring funds to
or from other accounts.
Although you can use your checking account as a reserve account for
your cash, much like a savings account, it may not be the best option
for that purpose. Most checking accounts do not earn interest, and even
those that do typically earn less than a savings account at the same
financial institution. Perhaps more importantly, many people find it
hard to save money in an account that they also use for their regular
spending.
Savings
Quite the opposite of checking, savings accounts are tailored for
minimal access. Savings accounts are designed for earning interest on
your deposits, deferring your spending and earmarking the funds for
specific purposes (e.g., emergencies or big purchases, such as a new
car).
A savings account also serves a different purpose than alternative
savings vehicles such as certificates of deposit (CDs) and investments.
While CDs may earn higher rates of interest, they lack the flexibility
of a savings account because funds cannot be withdrawn without penalty
until the end of the CD’s term. Likewise, investments may earn greater
returns, but — unlike a savings account — they can also lose value.
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A checking account is a type of bank deposit account that is designed for everyday money transactions. The money in a savings account, however, is not intended for daily use, but is instead meant to stay in the account — be saved
in the account — so that it might earn interest over time. Savings
accounts have higher interest rates than checking accounts, meaning it
is better to let large sums of money (e.g., an emergency fund) sit in
savings instead of checking. The fees and other criteria for checking
and savings accounts — such as monthly account maintenance fees, minimum
account balances, and interest rates — vary slightly from one bank to
another.
