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

The distinction between a savings account and a checking account is centered primarily on their intended purposes and features. A savings account is designed to encourage saving and typically earns interest on the deposited funds, helping your money grow over time. This makes it a suitable choice for individuals looking to save for future goals. In contrast, a checking account is primarily used for daily transactions, such as paying bills or making purchases, and typically does not earn interest, or earns very little.

Understanding this difference clarifies why the selected answer highlights that a savings account earns interest while a checking account is used for transactions. This fundamental characteristic impacts how individuals manage their finances, encouraging them to use each account type to serve specific needs. Knowing that a savings account is ideal for building savings and earning interest while a checking account facilitates transactions is crucial for effective personal finance management.