When considering a savings vehicle, it’s important to find an account that matches your needs and keeps your money secure and accessible in case you need it quickly. Think about how often you will need to access it, whether location matters (is online only ok or do you want a local branch?) and how much interest it will earn (if any). You’ll also want to pay close attention to a few details to avoid being charged to use it: minimum balance requirements, any monthly or annual fees, withdrawal limits, and transaction or ATM fees. These matter because if you’re trying to maintain or grow your balance, fees can erase any interest you receive.
A checking account is one of the most common accounts people use for their day-to-day transactions. It typically comes with a debit card and paper checks, and may or may not pay interest on the balance. It’s best suited for relatively frequent transactions and generally has the lowest (worst) interest rates available.
A savings account is typically used to hold your money with only a few anticipated withdrawals per month. Most savings accounts earn some interest, with some of the newer online banks (vs. your local bank) offering higher rates. Savings accounts aren’t quite as easy to withdraw or spend from as checking accounts, but usually offer better interest rates.
A money market account combines some of the features of checking and savings accounts by offering limited check writing, a debit card, and usually a higher interest rate than a savings account. The drawback is money market accounts typically require that you maintain a higher balance to qualify for the higher interest rates.
A certificate of deposit (CD) is an account where you’re required to leave your money for a period of time, such as 3 months, 6 months, 1 year, 5 years, etc. A CD typically pays more interest than any of the accounts listed above due to the fact that your money is inaccessible to you for that time. If you have to withdraw your money during the term, there is a penalty (usually loss of interest paid). You’re trading the convenience of access to your money for a higher interest rate.
All of these are good savings vehicles, whether at a bank or credit union, since they are federally insured up to $250,000 per individual depositor. Be sure to consider online banks if they fit your needs as they often offer higher interest rates (because they aren’t paying for brick and mortar branches).