There are a number of services a bank can offer but two of the most commonly used are savings and checking accounts.
Checking accounts are what we use for everyday activity. They’re called that because people actually used to write checks out of them.
You may still use paper checks, like for rent, or take cash out of that account from an ATM or pay out of the account with a debit card. The debit card links to your checking account.
A savings account is different. You can also use it and earn some interest on your money.
For example, you open a savings account with $1000 that pays 2% interest a year. After one year, $1000 becomes about $1020. It’s not a huge amount, but it helps.
In five years, that $1000 would be $1104 even if you don’t add more money. You get a little benefit while it encourages you to save it because it’s in a separate account.
In one year $1020
In five years $1104
Read more about earning interest in a savings account here.
But what if I run out of money in my checking account?
You can still access it from a savings account. You can withdraw it or move it from your savings to your checking account. Most banks even let you link it automatically so if you spend more than is in your checking account, it will automatically take it from your savings account.
There’s a limit of how often you can move money in and out of your savings account and a few other restrictions, depending on your bank.
So it helps you build up your savings plus separates your money into two portions, so you don’t think you have extra money to spend.