Savings, Checking, CDs and Money Market Accounts: What's the Difference?

There are many ways to save money without taking the risk of investing in stocks or making other investments with values that could either rise or fall over time.

Here's a simple guide to checking accounts, savings accounts, money market accounts and certificates of deposit.

Savings Accounts

Savings accounts are often the first step in financial planning. With a savings account you earn interest on money deposited into the account, and there are few restrictions on how long the money must stay or how you can withdraw it. Most savings accounts are limited to 6 withdrawals per month.

Savings accounts are easy to open online or at a bank branch and can be a useful way to help you achieve your goals of saving for big ticket items — from a new home to retirement, or an emergency fund for a rainy day. To stay organized, some people open a savings account for each major savings goal: for instance, one for a new home, one for a new car and one for a dream vacation. Some employers may allow you to split your paycheck and send part of it each month to your savings account, so your savings happen automatically.

With savings accounts, your money can be withdrawn easily in an emergency, and when your bank is FDIC-insured your deposits may be insured for up to $250,000 by the Federal Deposit Insurance Corporation (FDIC).

On the downside, interest rates for savings accounts can be lower than other savings options and may vary according to how much you have deposited in a bank and how long you’ve had money in the account.

Some savings accounts offer promotional interest rates for the first 3 or 6 months. Look for the highest Annual Percentage Yield, or APY. That's the total interest rate you'll be getting over the full year after considering any special rate offers and compound interest.

Citi allows you to open a savings account online, in branch or over the phone. See how much you can earn with a Citi savings account today.

Checking Accounts

This is where you keep the money you'll need to pay your regular bills: rent, phone, utilities, childcare, car payments and credit cards.

Checking accounts usually come with a debit card that lets you make purchases. You can also withdraw cash and make deposits at ATMs. Most checking accounts have a smartphone app that lets you make payments and deposit paper checks without having to wait in line at a branch or find an ATM.

Typically, checking accounts offer little or no interest on the money in your account and may charge a monthly maintenance fee for managing the account. Others may waive fees if you keep a minimum balance in the account or have another account or credit card at the same bank. Some banks also let you tie a savings or money market account to your checking account to cover you in case of an overdraft.

Certificate of Deposit (CD)

A CD is another way to save. There are many different types of CDs. A traditional CD lets you  earn a fixed interest rate on a fixed amount of money for a fixed period (called the CD term). You can choose how much you want to deposit and how long you want your term to be – Citi offers term options ranging from 3 months to 5 years.

In exchange for keeping your money in a traditional CD, you earn a guaranteed interest rate for the term. That means when you open the account, the interest rate is fixed and will not change for the duration of that term. At the end of the CD term, when the CD matures, you will have the original amount you deposited and interest earned. This type of account can be useful if you need the certainty of a fixed interest rate, can put money away for a period of time, and are looking to meet time-based financial and savings goals. CDs may also offer higher interest rates in comparison to a savings account and most are FDIC insured up to allowable limits.

If you need to access your funds before the CD term ends, you will be required to pay a penalty for early withdrawal for most CDs unless it is a no-penalty CD. Like standard CDs, no-penalty CDs also offer a fixed interest rate but provide more flexibility by allowing you to withdraw all or a portion of your money before the CD matures.

For some CDs, when the term ends and the CD reaches maturity date, if you do not make changes, the CD may automatically renew for the same term at the APY and interest rate available at that time. Once your CD renews, the funds may be locked once again for a new term until the next CD maturity date. If you don’t want your CD to automatically renew, you will have a grace period to make changes such as changing the term, adding or withdrawing money from your CD or closing your CD.

Citi allows you to open a CD online, at a branch or over the phone. See how much you can earn with a CD account today.

Money Market Account

A money market account is another type of savings account offered by banks and credit unions. Functionally the same as a traditional savings account, money market accounts allow you to earn interest on an FDIC-insured deposit with the ability to withdraw your funds via check, debit card or electronic transfer. 

What should I choose? A Savings Account, Checking Account, CD or Money Market?

For most people, a combination of accounts often works best. One rule of thumb is to keep enough money to cover 2 months' worth of expenses in your checking account, and up to 6 months' worth in a savings account or a money market account. That may be more money than you have, so think of this as a goal, not a rule.

Consider putting money you won't need right away, which you'd like to see grow over time – perhaps for a major purchase – in a CD.

Here’s a quick review of the types of accounts we covered: 

• Savings Account: An easy way to put money aside, but it  restricts how often you can withdraw your money.
• Checking Account: Think of it as a spending account for everyday expenses, from food to rent to credit card bills. Typically earns little or no interest.
• CD: Best for savers who are looking for the certainty of a fixed rate and are willing to lock money away for a period, as there are penalties for early withdrawals on most long-term CDs. CDs may also offer higher interest rates than the other 3 account types.
• Money Market Account: Lets you earn interest on your savings but may have  withdrawal and transfer restrictions.

Comparing Savings, Checking, CD and Money Market Accounts

This article is for general educational purposes. It is not intended to provide financial or tax advice. It also is not intended to describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products. Please consult your tax advisor with any tax questions. Citi is not a tax advisor