Sometimes it’s hard to know if the right banking option is a checking account, savings account, CD or money market account.
The bottom line
- Checking accounts: best for unrestricted access to funds; typically worst for earning interest.
- Savings accounts: good for earning some interest with quick access to funds.
- Money market accounts: can have higher interest than savings accounts, plus some check-writing and ATM access.
- Certificates of deposit (CDs): highest interest rates in exchange for most-limited access to funds
Keep reading for the full details.
Best for daily spending
When you want easy access to your money, checking accounts are ideal.
You can make transactions in many ways, including online transfers, ATMs, debit card purchases and personal checks.
Checking accounts tend to pay the lowest interest rates. Some interest-bearing checking accounts are a little better, but if you have cash that you don’t need to spend right away, keep reading for better options.
» MORE: Best checking accounts
Good rates and some access to funds
Savings accounts typically have higher interest rates than checking.
You can access your funds easily, too, but savings accounts aren’t meant for everyday purchases.
In fact, per a federal regulation, you can only take money out of savings six times a month via online banking, among other methods.
» MORE: Best savings accounts
Money market accounts
Better rates with higher balance requirements
Money market accounts tend to pay higher rates than savings accounts — typically with balance requirements of $1,000 or more.
Unlike savings accounts, money market accounts can come with paper checks and debit cards. You will still have the six-per-month limit on certain kinds of withdrawals, however.
» MORE: Best money market accounts
Certificates of deposit (CDs)
Top rates but limited access to funds
CDs tend to pay the highest interest rates of all these accounts.
But there’s a catch: You agree not to withdraw the money in your CD for a certain amount of time, called a “term length.” If you take out your money early, you’ll likely pay a fee.
CD terms typically range from six months to five years. The longer the term, the better the interest rate. Larger deposits can also boost rates.
CD laddering: Hedging your bets
A practice called “CD laddering” helps take advantage of long-term CD rates while protecting access to your funds to some extent. Here’s how it works:
- Put part of your money — say, one-third of the total — into a one-year CD, another third into a two-year CD, and the rest in a three-year CD.
- When your first CD “matures” after a year, you can open another three-year CD — another rung on your ladder. Or you could collect your money if you need it.
- You’ll have the same decision to make each year, as long as you keep opening up three-year CDs.
Weigh your options
Different kinds of bank accounts are designed for different purposes, from daily spending to long-term savings.
The more you understand each option, the better you can determine how to make the best use of all of them.
Updated April 15, 2016.