Pick the Right Bank Account to Match Your Savings Goal

Photo illustration to accompany article on choosing a bank account Grant Crowder and Getty Images

We want to help you make more informed decisions. Some links on our site — clearly marked — will take you to a partner website and may result in us earning a referral commission. For more information, see How We Make Money.

When setting financial goals — whether it’s building an emergency fund or saving for an upcoming root canal — it’s important to know where to put those savings. 

Putting money into the wrong account may seem like a small blunder, but it can cause headaches down the line if, say, you need to pay for the root canal and you realize the funds are tied up in a three-year CD. These distinctions set you up for success down the line, so we matched the most common types of bank accounts with different financial and life goals.

Interest rates have been falling for the past year, and that decline has been hastened by the COVID-19 pandemic. While rates may not be as competitive now, there are still ways to capture earnings on your savings while maintaining the liquidity necessary during a downturn. For example, it’s still possible to get a savings account APY between 1% and 2% with an online bank. 

It’s important to weigh the relative benefits of any account with flexibility, as we enter a period of economic uncertainty. And remember that you can use different types of accounts for different purposes, like a savings account for your emergency fund and a money market account for your future home down payment. (Retirement savings require a separate investing strategy.)

Here are the four most common banking accounts, and the best way to use each.

Checking Account

What is it? Intended to be your primary bank account, a checking account handles purchases, checks, recurring bills, transfers, and other types of transactions. This type of account comes with a debit card and allows for ATM withdrawals, checks, and transfers in to and out of the account — but check the details, because these services can come with fees. One downside of a checking account is that the interest rate is usually zero or very low, and there may be monthly fees if you don’t meet certain requirements.

Who is it for? All banking customers at minimum need a checking account. It’s the only account intended for the high activity of daily living and spending, providing easy access to your money.

Best for: 

  • Purchases
  • Recurring bills
  • Unlimited transfers and checks
  • ATM withdrawals

Not recommended for: 

  • Savings
  • Earning interest

Keep in mind: “Are there required minimum balances to maintain, and if so, can you realistically and reliably maintain those balances without incurring fees?” — Tracy East, outreach and communications director for Consumer Education Services Inc., a financial counseling nonprofit in Raleigh, North Carolina.

Savings Account

What is it? Savings accounts offer you a rate of return (APY) in exchange for keeping money with the bank. Best for planned expenses and emergency funds, they allow you to earn a small return on your money — interest rates at online banks are typically between 1% and 2% — while avoiding the volatility of the stock market. Typically, you are limited to six transactions (withdrawals or transfers) per month, but with the COVID-19 pandemic, the Federal Reserve has temporarily waived that rule. 

Who is it for? Anyone in a position to save money should have a savings account, if only to keep emergency savings separate from their daily checking account. If you have more than three months of expenses in a checking account, it’s best to move the excess to a savings account. 

Best for: 

  • Emergency fund
  • Vacation funds
  • Planned tax payments
  • House down payment

Not recommended for: 

  • Frequent transfers
  • The bulk of your retirement savings
  • Automatic bill payments
  • Check writing
  • Investing

Keep in mind: “You can have multiple accounts — one for vacation, one for your next vehicle — and not be confused by what’s for your emergency fund.” — Todd Christensen, AFCPE-accredited financial counselor at Money Fit by DRS Inc., a nonprofit that offers debt-relief programs.

Money Market Account

What is it? Money market accounts are a type of savings account offering some of the flexibility of a checking account. MMAs typically come with interest rates higher or commensurate with savings accounts, but also offer a debit card and check-writing privileges. Usually, money market accounts are limited to the same “six convenient withdrawals” rule as savings accounts, but that rule is now temporarily suspended because of COVID-19. They often require higher minimum amounts ($2,500) to open.

Who is it for? People who are saving larger amounts of money they don’t want tied up in the stock market or a CD.

Best for: 

  • Emergency fund
  • College tuition
  • Vacations
  • Planned tax payments
  • House down payment
  • Debit card purchases

Not recommended for: 

  • Frequent transfers
  • The bulk of your retirement savings
  • Automatic bill payments
  • Check writing
  • Investing
  • Savings of less than $2,500 

Keep in mind: Interest rates are low right now, so the interest rate on a money market account may not be better than a savings account at this time. 

Certificate of Deposit

What is it? Certificates of deposit (CDs) offer relatively high interest rates in return for locking up cash for a fixed period of time (known as a term length, which can range from one month to 10 years). The longer the term length, the higher the APY. CDs tend to be the least liquid of bank accounts; early withdrawals will trigger a penalty, which can eat at interest earned and even into your principal amount. 

When saving with CDs, it’s often recommended that you divide your purchase into multiple CDs, so you can get a variety of rates and levels of liquidity. 

Who is it for? Anyone who has enough in liquid savings that they can afford to lock up a portion of it in exchange for higher rates

Best for (keeping in mind term length): 

  • Planned expenses timed for after the term length ends
  • College tuition
  • Future vacations
  • Planned tax payments
  • House down payment

Not recommended for: 

  • Emergency fund
  • Investing
  • Cash you need on short notice

Keep in mind: “CDs make your money inaccessible for a set period of time. It eliminates the temptation to dip into that money and [offers] a hands-off approach if you’re really wanting to save and invest your money.” — Tracy East, outreach and communications director for Consumer Education Services Inc.