Difference between checking and savings account

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 While CDs may earn higher rates of interest, they lack the flexibility of a savings account because funds cannot be withdrawn without penalty until the end of the CD’s term.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.

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.

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