What Kind of Bank Account Should You Choose?


January 5, 2024

Personal banking comes with many account choices. Each one, be it a checking account, certificate of deposit (CD), money market or savings account, has different features to meet your needs. This volume of options can make it challenging to understand which account — or accounts — are right for you.

There are plenty of advantages to each kind of personal banking account. Some are designed for everyday use, others for long-term growth or building emergency savings. Which is right for you depends on your long- and short-term needs.


Understanding the basics

There are two general types of personal banking accounts: those that facilitate your everyday financial needs, like checking accounts, and those that are designed to hold onto your money for the mid- to long-term, like savings accounts and CDs. There’s more to it than that, however, as some accounts, like money market accounts, do a bit of both. Here’s what you need to know:

  • Checking accounts: Your go-to for everyday transactions. Checking accounts typically offer debit card capabilities as well as digital access through online and mobile banking, and often do not limit the number of transactions you can make per month.
  • CDs: A fixed-term investment that provides higher interest rates in exchange for locking in your money for a specified period. Periods can last anywhere from a few months to years, and with a few exceptions, you cannot withdraw your money from a CD until the end of the period. Otherwise, you’ll incur a penalty.
  • Money market accounts: These accounts are a hybrid between checking and savings accounts. They usually offer higher interest rates with limited check-writing abilities, and you may be limited by how many transfers you can make per month.
  • Savings accounts: The classic choice for building financial safety nets, savings accounts provide flexibility and accessibility of funds. From basic to high-yield savings, these accounts give you recurring interest payments on a balance that you generally do not use for everyday banking.


Choosing between accounts

Deciding where to allocate your funds involves understanding the unique advantages of each account type. Consider the following factors to make informed decisions that align with your financial objectives:

Checking Accounts

  • Advantages:
    •  Ideal for everyday transactions
    •  Provide immediate access to account funds, which can often be deposited automatically through direct deposit, at an ATM or from a branch
    • Can pay for goods using a debit card or mobile wallet
    • Can pay bills automatically through online and mobile banking
    • Can access cash from an ATM
  • Considerations:
    • Most checking accounts do not offer high interest rates like savings accounts and money market accounts do
    • This means the balance in your checking account will either grow slowly or not at all, depending on whether your checking account offers interest

CDs

  • Advantages:
    • Generally come with the highest interest rates for your cash
    • Come with Federal Deposit Insurance Corporation (FDIC) protection
    • Good for long-term savings
  • Considerations:
    • Limited to how much you can touch the funds — if at all — during the length of its term
    • Can still withdraw funds, say in the event of an unexpected bill or emergency, but doing so often comes with a significant penalty
    • Penalties can include a loss of interest, a reduction in the money deposited, and other

Money market accounts

  • Advantages:
    • Generally offer higher interest rates than most checking accounts
    • Have FDIC protection
    • Funds can be accessed through online banking and a debit card
  • Considerations:
    • While these accounts usually come with a debit card, they may only have limited check-writing capabilities
    • May also come with higher account balance minimums

Savings accounts

  • Advantages:
    • The cornerstone account of financial planning, a savings account is often the first step toward saving for the future you can take
    • Offer flexibility and accessibility, making them ideal for reaching short-term financial goals
  • Considerations:
    • Generally have lower interest rates compared to CDs
    • Plus, you end up paying for immediate access to cash in terms of lower interest rates than other savings options and investments


Each of these accounts has its advantages — whether high interest or accessibility — that make it a potential fit for your situation, but they all have their own nuances as well. Picking an account solely by its interest rate, for example, may leave you exposed to terms that can end up setting you back, such as paying early withdrawal penalties when you need to pull money from a CD. That’s why it’s crucial to look at the big picture.

You may even want to phase in these kinds of accounts. Many savers start with a checking account, followed by a savings account, followed by a CD. This gives you access to cash for everyday needs, short-term savings and long-term savings. If a money market account is within your plans, having one can play a complementary role to both a checking and savings account.


Optimizing each product: How they can work for you

With a thorough understanding of each account type, you'll be empowered to make informed decisions that align with your financial objectives. Whether you're focused on everyday money management with a checking account, aiming for long-term growth with a CD, finding balance with a money market account or building an emergency fund with a savings account, each solution has a unique role in your financial toolkit.


Mastering the nuances of your finances

Mastering the nuances of checking accounts, CDs, money market accounts and savings accounts is paramount for effective money management. It’s critical to understand how each of these accounts works in concert to cover each of your financial needs. Checking accounts are a great way to conduct daily banking, and savings products are an excellent next step to get your financial foundation firmly on the ground.

As you navigate your personal banking options, Northwest Bank can help. Explore the advantages of the best CD rates, the opportunities presented by money market accounts and the security offered by the high interest rate savings accounts. Your financial journey is unique, and Northwest Bank is here to guide you every step of the way.