When it comes to choosing the right financial account for your household, you have several key options. While we introduced the pros and cons of each of the most common savings accounts during Step 1 (Where to Save Your Money), the following list provides information about how some of these accounts differ in purpose:
Checking Account
- Used for everyday spending and bill paying
- Typically federally insured up to $250,000 per account
- Monthly administrative or maintenance fees can be waived with direct deposit of your paycheck
- Can have two or more checking accounts to separate your spending activities (e.g. one for paying regular bills, another for groceries, and a third for dining out, entertainment, and other discretionary expenses)
Savings Account
- Used for storing money over the short-term
- Limited number of monthly withdrawals and transfers
- Return a very small amount in interest
- Typically federally insured up to $250,000 per account
- Can open multiple savings accounts to separate your funds based on their purpose (e.g. emergencies, birthdays, Christmas and holiday gifts, vehicle repairs, furniture and appliances replacement, vacations and travel…)
Certificate of Deposit (CD)
- For short-term goals
- For a specific “term” ranging from one month to five years or longer.
- Small penalty for accessing before the end of their term
- Often automatically renew for another term
- Slightly more interest paid than savings accounts
Money Market Account (MMA)
- For short-term savings
- Federally insured account meant
- Typically invested in secured bonds
- Minimal interest rates
- Usually come with limited checks and/or a debit card
Financial Institutions
You can use three basic financial institutions for your accounts:
- Banks: Offer checking, savings, CDs, MMA, loans, and other financial products, usually insured through the FDIC. Typically owned by shareholders.
- Credit Unions: Offer checking, savings, CDs, MMA, loans, and other financial products, usually insured through the NCUA. Typically owned by members.
- Brokerages: Offer many types of retirement investment accounts, but few are federally guaranteed.
