Checking, Savings, Money Market and CDs: Which Account for Which Job
Four account types trading access against yield, with one that locks your money on purpose.
Banks offer several deposit accounts that look similar and behave differently. The variable that separates them is how quickly you can reach the money, and yield generally rises as access falls.
Checking accounts
Built for movement. Unlimited transactions, debit card, checks, bill payment, direct deposit. Most pay little or no interest, and high-yield checking accounts that pay well usually attach monthly activity requirements.
Hold what you need for a month or two of expenses plus a buffer. Anything beyond that is earning nothing while sitting in the most accessible place you own.
Savings accounts
Built for holding. Pay meaningfully more than checking, particularly at online banks, and allow transfers to your checking account within a day or so.
Federal limits on savings withdrawals were relaxed in 2020, but individual banks may still impose their own transaction limits and charge fees for exceeding them. Check your account terms rather than assuming.
This is the standard home for an emergency fund and for money you will need within a year or two.
Money market deposit accounts
A hybrid. Savings-style interest with some checking-style features, often including check writing or a debit card. Minimum balances tend to be higher and rates are tiered.
Worth comparing against a plain high-yield savings account, which frequently pays as much without the minimum. The name causes confusion too: a money market deposit account at a bank carries deposit insurance, while a money market mutual fund at a brokerage does not.
Certificates of deposit
You commit a sum for a fixed term, from a few months to five years, in exchange for a fixed rate. Withdraw early and you pay a penalty, commonly several months of interest.
The fixed rate is the point. When rates are falling, a CD locks in today's yield for the whole term while savings account rates drift down. When rates are rising, the same lock works against you.
| Account | Access | Typical yield | Best for |
|---|---|---|---|
| Checking | Immediate | Very low | Monthly spending |
| Savings | 1-2 days | Higher | Emergency fund |
| Money market | 1-2 days, some checks | Similar to savings | Larger balances |
| CD | Locked, penalty to break | Highest of the four | Known future expense |
CD laddering
Split a sum across CDs maturing at staggered intervals, for example five equal amounts maturing one to five years out. Something matures every year, which you either spend or roll into a new long-term CD. You get most of the yield of long terms while keeping regular access.
Choosing by timeframe
Match the account to when you need the money.
- This month. Checking.
- Unknown, possibly tomorrow. Savings. An emergency fund that is locked up is not an emergency fund.
- A known date more than six months out. A CD maturing near that date, if the rate beats savings by enough to justify the lock.
- Years away, and you can accept fluctuation. None of these four. This is a question about investing rather than banking.
Points to check before opening anything
- Minimum opening deposit and minimum ongoing balance
- Whether the advertised APY has a balance cap
- Early withdrawal penalty on a CD, stated in months of interest
- Whether a CD renews automatically at maturity, and the notice window to stop it
- Confirmation that the institution carries federal deposit insurance
Automatic CD renewal catches people. A maturing CD that rolls into a new term at whatever rate applies that day, without you noticing, can lock money away at a rate you would not have chosen. Diary the maturity date when you open it.
This article is general information about how consumer finance products work in the United States. It is not financial, tax or legal advice and is not a recommendation of any specific product or provider. Rules and pricing vary by state and by institution.