Checking Account

What is it? 

A checking account is transactional and intended to be your primary account at a bank. You can use the provided debit card to make purchases, write unlimited checks, and initiate unlimited transfers in and out of the account. 

Unlike savings accounts and money market accounts, you are not held to a six-transaction-per-month limit, as it’s expected that cash will flow in and out of the account. However, unlike certificates of deposit, you do not have to hold the money in the account for a fixed amount of time. The tradeoff for this liquidity is that most accounts don’t offer interest and those that do tend to have low APY (annual percentage yield). For more information, read our review of the best checking accounts.

What should it be used for? 

Purchases, online transfers, checks, automatic bill payments.

What should it not be used for? 

Savings, high interest.

Pros:

  • Comes with a debit card 
  • Check-writing privileges
  • Can withdraw cash from ATMs
  • Unlimited transfers and withdrawals
  • Insured for up to $250,000 by FDIC or NCUA

Cons:

  • Most checking accounts don’t offer interest
  • Not ideal for specific savings goals

Savings Account

What is it? 

A savings account allows you to earn interest on savings you don’t need immediate access to. The national average interest rate on savings accounts is 0.09%, but many online banks offer more competitive rates (upwards of 1.60%). 

This type of account is best for planned expenses and emergency funds, as your funds can receive a friendly rate of return without experiencing the volatility of the stock market. A downside is that the variable interest rate may not be as high as you’d receive with a money market account or CD. You’re also limited to six “convenient” withdrawals or transfers per month (and risk fees if you go over that amount), so you’ll need to be careful about the number of transactions initiated. For more information, check out our review of the best savings accounts from online banks.

What should it be used for? 

Emergency savings, tuition, planned tax payments, vacation funds, savings during your retirement.

What should it not be used for? 

Frequent transfers, multiple automatic bill payments, the bulk of your retirement savings, check-writing.

Pros:

  • Higher interest rate than interest-bearing checking accounts 
  • Insured for up to $250,000 by FDIC or NCUA
  • Can withdraw cash from ATM
  • Good for long-term savings goals

Cons:

Money Market Account

What is it? 

A money market account is a type of savings account that offers some of the flexibility of a checking account. With a money market account, you can earn a relatively high variable interest rate for keeping your cash with the bank, while also gaining debit card and check-writing privileges you wouldn’t normally receive with a regular savings account.

For that high APY, though, you may need to put more cash. Some banks require minimum opening deposits as high as $2,500 or $5,000 to open an account. A money market account is ideal; however, if you want the high rate of return without locking up your funds in a high-yield CD or buying shares of stock. For more information, check out our guide to money market accounts and our review of the best ones.

What should it be used for? 

Emergency savings, tuition, planned tax payments, vacation funds, savings during your retirement, writing checks, debit purchases

What should it not be used for? 

Frequent transfers, multiple automatic bill payments, the bulk of your retirement savings

Pros:

  • Higher interest rate than many savings accounts
  • Check-writing and debit card privileges
  • Can withdraw cash from ATMs
  • Insured for up to $250,000 by FDIC or NCUA
  • Good for long-term savings goals

Cons:

Certificate of Deposit

What is it? 

A certificate of deposit (or a CD) allows you to receive high-interest rates in return for keeping cash locked away for a fixed amount of time (called a term length). There is a lot of customization with CDs, despite their general inflexibility. You can put money into a CD for a time period as short as a month and as long as 10 years. The fixed interest rate increases the longer you commit. CDs also come in multiple varieties, including ones with an opportunity to increase your interest rate and ones without withdrawal penalties. CDs can also be maximized using a ladder strategy, which incorporates CDs of multiple term lengths to increase returns.

CDs are among the least liquid deposit accounts offered at banks, however. You cannot freely add or withdraw money from a CD. If you withdraw from a CD before the maturity date, you’ll be charged an automatic early withdrawal penalty that could eat into the principal amount saved. An exception is made with no-penalty CDs, though the tradeoff is that your APY will likely be lower. For more information, check out our comprehensive guide to CDs and our roundup of the best CDs that banks are offering.

What should it be used for? 

Planned expenses, tuition, savings during your retirement.

What should it not be used for? 

Emergency savings, cash you may need at a moment’s notice, the bulk of your retirement savings.

Pros:

  • High-interest rates
  • Multiple term lengths and CD types 
  • Insured for up to $250,000 by FDIC or NCUA
  • Good for planned savings goals with an end date

Cons:

  • Early withdrawal penalty
  • Cannot add more money to an already purchased CD
Money market account Savings account Checking account CD
FDIC- or NCUA-insured
Access to cash 6 monthly transactions max, including withdrawals and transfers 6 monthly transactions max, including withdrawals and transfers Unlimited transactions Withdrawals before the maturity date subject to penalty
ATM access X
Interest rates (relative to each other) Medium Low Low (Many don’t offer an interest rate) High