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Choosing the right bank for your money is only half the battle. Once you've settled on that, you have to decide which types of bank accounts you're going to use. There are four main options you'll come across -- checking accounts, savings accounts, money market accounts, and certificates of deposit (CDs) -- and each of them are discussed in detail below.
Checking accounts are the best accounts for everyday spending. They give you easy access to your money and offer several ways for you to withdraw it. Most include check-writing capabilities and a debit card in addition to online and mobile banking tools.
Some of the best checking accounts also enable you to earn interest on your funds. But these are rare and even those that do offer interest usually have a lower rate than what you'll find with the other account types listed below.
You can deposit and withdraw funds from your checking account as often as you'd like without any monthly fees or penalties. This makes a checking account a better option than the accounts listed below if you expect to make frequent withdrawals.
Checking accounts typically have FDIC insurance. This protects your money up to $250,000 per person, per bank, per ownership category, in the event of bank failure. All licensed U.S. banks have this on their deposit accounts. If you open a checking account through a credit union, you'll get National Credit Union Administration (NCUA) insurance. This is the same as FDIC insurance, except it's for credit unions.
Savings accounts are intended to hold money you don't plan to spend immediately. It's a great place for your emergency fund or money you're saving for a near-term goal, like a home down payment.
Money you keep in a savings account earns interest over time. How much you get depends on how much money you keep in the account and its annual percentage yield (APY). A higher APY means more money for you.
Rates vary from one savings account to another and over time, but here's a look at what some of the best savings accounts have to offer right now:
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Rating image, 4.50 out of 5 stars.Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
Rating image, 4.00 out of 5 stars.Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
|APY||3.90%||4.00%||4.60% Rate info CIT Bank also offers the Platinum Savings account. Savers with $5,000 or more can get a 4.85% APY with Platinum Savings, but accounts with less than $5,000 get 0.25% with that account.|
|Min. to earn APY||$0||$0||$100|
The downside to savings accounts is that you're often limited to a certain number of monthly withdrawals, and exceeding that can carry penalties. A federal law known as Regulation D used to restrict all savings accounts to six monthly withdrawals. The government waived this at the start of the COVID-19 pandemic and has yet to reinstate it, but some banks still persist in charging fees for more than six monthly savings account withdrawals.
Savings accounts also rarely offer you any means of withdrawing money directly. Most don't have debit cards or check-writing capabilities, so you must transfer the money to a checking account before you can actually withdraw the funds.
There's no limit on how much you can keep in a savings account, but it's usually best to stick to $250,000 or less ($500,000 or less if you have a joint savings account) because that's how much is covered by FDIC insurance. Keeping any more in the account could put you at risk of loss if your bank goes under.
Money market accounts share some of the features of checking and savings accounts. Like savings accounts, they earn interest, and sometimes money market account APYs can be higher than savings account APYs. But money market accounts often have higher minimum deposit requirements. This can make them less accessible to those with small balances.
Some money market accounts include checks and/or a debit card so you can directly withdraw funds from the account. You can also transfer funds to a checking account if you prefer. But money market accounts are subject to the same limits on monthly withdrawals as savings accounts. So one of these probably isn't the best choice if you plan to move your money around a lot.
Money market accounts are also protected by FDIC insurance, but just like checking and savings accounts, you don't want to keep more than $250,000 in one or you're putting yourself at risk of loss.
Certificates of deposit (CDs) are a special type of savings account that enables you to earn a higher APY on your savings, but only if you agree not to touch your money for a while. You also have to be willing to deposit at least a few hundred dollars as CDs almost always have minimum balance requirements.
Every CD has a term, which can range from as little as few days to as long as 10 years or more. Most fall within the six-month to five-year range. This is how long you agree to leave your money untouched in the CD. If you fail to do so, you'll get slapped with early withdrawal penalties.
The best CD rates are even higher than savings account interest rates. Normally, your CD's APY is locked in for the full term, though this varies depending on the type of CD. That can pose a risk because, if you lock in a low rate and interest rates later rise, you're stuck with what you've got.
Some people get around this with a strategy known as CD laddering. This is where you open several CDs of different lengths -- for example, a one-year CD, a two-year CD, a three-year CD, a four-year CD, and a five-year CD. You deposit equal amounts in each one, and then as each CD term ends, you reinvest the funds in a new five-year CD. This enables you to take advantage of the higher interest rates on long-term CDs while still giving you regular access to some of your cash.
Because you're not supposed to take any money out of your CD before the term is up, you won't have access to any checks or debit cards from this account. But you get the same FDIC insurance as the other bank accounts described above.
Each bank account described above has its pros and cons. If you're still not sure which types of bank accounts are right for you, ask yourself the following questions:
Your answers should guide you toward the type of account that's best for you. And feel free to open more than one if that suits you. You could open a checking account for everyday spending, a savings account for your emergency fund, and a CD for some of your other savings you don't plan to use for a while. Figure out the combination that works best for you and know you can always add, change, or remove accounts down the road.
That depends on your situation. Checking accounts are best for everyday spending. Savings accounts, money market accounts, and certificates of deposit (CDs) are better places for your savings.
Checking accounts are meant to hold money for everyday spending. There's no restrictions on withdrawals and most include checks and a debit card. But you don't usually earn interest on your funds. Savings accounts offer interest, but it's often difficult to withdraw funds without first transferring them to a checking account. Plus, savings accounts can carry penalties if you make too many monthly withdrawals.
There are four major types of bank accounts: checking accounts, savings accounts, money market accounts, and certificates of deposit (CDs).
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