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.
In general, some banks may offer overdraft protection products that you can opt in to, which would allow you to tie a credit line, savings or money market account to your checking account to cover you in case of an overdraft.
Checking account pros and cons
Pros
- Convenient access to your money for everyday transactions
- Direct deposit can allow you to access your earnings quickly
- Potential to earn a bonus for opening a new account
- Deposits are insured up to FDIC limits, provided the bank is FDIC-insured
Cons
- May come with fees
- Typically offer low (or no) interest
Savings accounts
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 in the account or how you can withdraw it. Some savings accounts may limit your monthly withdrawals, though many top banks (including Citi) have no withdrawal restrictions. That said, the money you withdraw won’t earn interest and grow.
Savings accounts are typically 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 an emergency fund. You may also open different savings accounts for each of your savings goals. For example, you could have an account dedicated to saving for a home, another for a new car and another for your dream vacation.
Some employers may also allow you to direct deposit all or part of your paycheck to your savings account each month, so your savings happen automatically. Banks may also allow you to set up automatic transfers to your account.
Savings account pros and cons
Pros
- Your money can typically be withdrawn easily in an emergency (especially if your savings account is linked to your checking account)
- Deposits are insured up to FDIC limits, provided the bank is FDIC-insured
- Allows you to earn a higher APY compared to a traditional savings account
Cons
- Interest rates can be lower than MMAs and CDs, and may vary according to how much you have deposited and where you live
- Some banks may limit monthly withdrawals
Certificates of deposit (CDs)
A CD is another way to save. In exchange for agreeing to keep your money in that account for a certain period of time, you can earn a pre-determined interest rate, which may be higher than what a traditional savings account offers. Most CDs are FDIC insured, up to allowable limits. Keep in mind that if you need to access your funds before the CD term ends, you’ll generally be required to pay an early withdrawal penalty.
At the end of the CD term, when the CD matures, you will have the original amount you deposited, plus earned interest. You can then withdraw the money or re-invest it in another CD or move it to another account.
There are many types of CDs, including:
- Fixed rate CDs: These offer a fixed interest rate for a fixed period (called the CD term). Your interest rate is determined when you open the account and will not change for the duration of the term.
- Step up CDs: These also offer fixed interest, but instead of sticking to the same interest rate throughout the entire term, there are pre-determined rate hikes. For example, you may receive a certain interest rate increase every 12 months.
- No penalty CDs: 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. These CDs let you withdraw full funds before the term ends without a penalty. In general, these CDs offer lower APYs than traditional CDs.
CDs 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.
You may apply for and open a Citi CD online. See how much you can earn with a CD account today.
CD pros and cons
Pros
- Can provide guaranteed interest rate for the CD term you open
- May be able to automatically renew your CD when your term ends
- Generally, wide range of terms available
- Deposits are insured for up to $250,000 by the Federal Deposit Insurance Corporation (FDIC), as long as your bank is FDIC-insured (coverage is per depositor, for each account ownership category at that bank)
Cons
- Requires you to deposit funds for the CD terms which may be months or years at a time
- Can charge fees for withdrawing funds ahead of schedule
Money market accounts
A money market account is another type of savings account that banks and credit unions offer. Like a traditional savings account, money market accounts allow you to earn interest on your deposit. Like a traditional checking account, MMAs may give you the ability to withdraw your funds via check, debit card or electronic transfer — although there may be transaction limits.
Money market account pros and cons
Pros
- May offer higher APYs than traditional savings accounts
- Deposits are insured for up to $250,000 by the Federal Deposit Insurance Corporation (FDIC), as long as your bank is FDIC-insured (coverage is per depositor, for each account ownership category at that bank)
- May give you access to a debit card and checks
Cons
- Often have minimum balance requirements
- Transactions are typically limited
What should I choose? A savings account, checking account, CD or money market account?
For most people, a combination of accounts often works best. One rule of thumb is to keep enough money to cover 1 to 2 months’ worth of expenses in your checking account, plus 30% as a cushion. And it’s often advised to keep 3 to 6 months’ worth of necessary expenses in a savings account or a money market account for an emergency fund. That may be more money than you have, so think of this as a goal, not a rule.
You may also choose to put away money you want to earmark for a future expense, such as a large purchase, in a CD. That way, those funds can grow over time, without the risks associated with short-term investing.
Is it better to have a savings or a checking account?
The better option depends on your needs. For example, while savings accounts are better for earning interest and growing your money over time, a checking account is better suited to handling everyday expenses. Both types of accounts can be a valuable part of your financial life.
Is a money market account better than a CD?
It depends on your needs and goals. A CD may offer higher APYs, but if you want to access your money soon, an MMA may make more sense.
Comparing savings, checking, CD and money market accounts
| |
Savings accounts |
Checking accounts |
CDs |
Money market accounts |
|---|
| Monthly Service Fee |
Sometimes |
Sometimes |
No, but may have early withdrawal penalties |
Sometimes |
|---|
| Minimum Deposit or Balance |
Sometimes |
Typically |
Yes |
Often |
|---|
| Fixed or Variable Return |
Variable |
Typically none |
Fixed |
Variable |
|---|
Account type FAQs
What’s the main difference between a checking and a savings account?
In general, checking accounts are designed to handle everyday transactions, such as paying bills and receiving your paychecks. Savings accounts, by contrast, are meant to allow you to save and grow your money over time.
What are the downsides of a money market account?
MMAs typically limit the number of check, debit card or electronic transfer transactions you can make each month. These accounts may also impose minimum balance requirements and charge fees for not meeting them.
How much interest will $10,000 typically earn in a savings account?
It depends on your account’s APY. For example, if you have a savings account with a 3% APY, you’d earn about $305 in interest over a year. However, this assumes that your APY stays the same during the entire year. Savings accounts typically have variable rates, which can change.
Disclosure: This article is for general educational purposes. It is not intended to provide financial advice. It also is not intended to completely describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products.
