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 bonds, or making other investments whose value could either rise or fall over time.

Here's a simple guide to the main types of accounts you can open at a bank.

Savings Accounts

Savings accounts are often the first step in financial planning. With a savings account you earn interest on the 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 by law to six withdrawals per month.

Savings accounts are easy to open online or at a 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 to have an emergency fund for a rainy day. Some people will 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. Many employers can also split your paycheck and send part of it each month to your savings account, so you don't even have to think about it.

Savings accounts are generally a safe investment choice. They offer a fixed rate of return, your money can be withdrawn in an emergency with no penalty, and when your bank is FDIC insured your deposits could be insured for up to $250,000 by the Federal Deposit Insurance Corp. (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 are required to leave your money in the account.

Some savings accounts offer sign up bonuses with a higher interest rate for the first three or six 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 averaging in any special offers.

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, mobile phone, utilities, childcare, car payments and credit cards. Increasingly, checking accounts are a lot more about just paper checks. More Americans are making payments through electronic payment systems and with credit cards or by direct debit from their checking accounts. Still, when you need to pay the plumber and don't want to use cash, checks come in handy.

Checking accounts usually come with an ATM card that lets you withdraw cash and make deposits without visiting a branch. And most checking accounts today have a smartphone app that lets you make payments and even deposit paper checks without having to wait in line at a branch or seek out an ATM.

Typically, checking accounts offer little or no interest on the money in your account and may charge a minimal 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.

Checking vs. Savings Account: A checking account is where you keep the money needed to pay your bills from week to week. It offers little or no interest, but you can write checks, pay bills and draw cash from an ATM. A savings account is where you can put away money you'll probably need later. You can only perform a limited number of withdrawals each month, but you can earn interest on the money that's in it.

Certificate of Deposit (CD)

Think of a CD as a type of bank account that allows you to save by locking in a fixed amount of money for a fixed period of time called the CD term. You get to choose how much and how long you want to lock your money away with Citi offering term options ranging from 3 months to 5 years.

In exchange for locking your money away, a CD gives you a guaranteed interest rate for the term. That means that 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 lock 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 are FDIC insured up to allowable limits.

If you do 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. Therefore, it’s important to check which type of CD you have and the specific terms and conditions. Citi also offers a no penalty CD.

An important feature of a CD is that when the CD term ends (called the CD Maturity Date), if you do not make changes, the CD will automatically renew for the same term at the APY and interest rate available at that time. Once your CD renews, the funds will 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 term, adding or withdrawing money from your CD, or closing your CD.

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

CD vs. Savings Account: A CD gives you a guaranteed interest rate in exchange for locking your money away. The main difference between a CD and a savings account is that with a savings account you can access your money at any time without penalty, but the interest rate can change. With a CD you can’t easily access your money during the CD term, but the interest rate will not change. If you need to access your money before the CD term ends, you will be required to pay a penalty for early withdrawal on most CD products.

Money Market Account

Combining the benefits of a savings and a checking account, a money market account generally pays a higher interest rate than a savings account and gives you limited check–writing ability. It usually requires you to maintain a higher balance in exchange for its higher interest rate.

Money market accounts are regulated in the same way as savings accounts, so they're also restricted to six withdrawals and transfers per month. Still, you can write checks on a money market account, and some accounts offer debit cards.

Money Market vs. Savings: A money market account offers a higher interest rate than a savings account but, like a savings account, you can access your money at any time without a penalty. You can also write occasional checks on a money market account.

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

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

Money you won't need right away, and which you'd like to see grow over time – perhaps for retirement or a major purchase – should go in a CD.

  • Savings Account: An easy way to put money aside, but it offers a low interest rate and 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. But it typically earns little or no interest.
  • CD: This is best for savers who are looking for the certainty of a fixed rate and are willing to lock money away for a period of time as there are penalties for early withdrawals on most long-term CDs. CDs may also offer higher interest rates than on the other three account types.
  • Money Market Account: This offers higher interest rates than the traditional savings account, but it has similar withdrawal and transfer restrictions.

Comparing Savings, Checking, CD and Money Market Accounts

  Savings Checking CD Money Market
Monthly Service Fee Sometimes Sometimes No Sometimes
Minimum Deposit Sometimes Sometimes Yes Yes
Return Varies Varies Varies Varies
Fixed or Variable Return* Variable Variable Fixed Variable
Penalties for Early Withdrawal No No Yes No

*Fixed return: You are guaranteed at least a minimum rate of investment
Variable return: Investment amount fluctuates based on the investment performance.

"Risk of losing money" is based on deposited funds and not overdraft and/or other associated fees/penalties related to accounts.

Disclosure: This article is for educational purposes about banking products. It is not intended to provide legal, investment, tax, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should refer to the disclosures financial institutions provide for various products and consult a qualified professional.

Additional Resources

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  • Learn how FICO® Scores are determined, why they matter and more.

  • Review financial terms & definitions to help you better understand credit & finances.