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Where should you keep savings?

By Paula Pant ·
Thursday, October 23, 2014
Posted: 8 am ET

I started saving money in earnest shortly after I landed my first post-college, entry-level job. The concept of saving came naturally: I just continued to live like a college student, despite my bump in pay.

But choosing where to keep that money was a bit of a head-scratcher.

I remember the questions: Should I put my savings in a savings account? Leave it in a checking account? Commit to a CD?

Here's what I learned about these options:

Checking account

 These accounts pay the lowest interest rate on the market. The interest rates on savings accounts, money-market accounts and CDs almost always will beat the offer you can get from a checking account.

So, you don't want to keep too much money in checking.

On the other hand, keeping too little in your checking account can be penny-wise and pound-foolish. A single overdraft or bounced check could cost you up to $35 in bank fees.

Keep a little extra in your checking account as a form of "cheap insurance." You can also link your checking account to your savings account so that the bank automatically will pull funds from the latter in the event of an overdraft.

Savings account

  A savings account is a decent choice for money you intend to keep around for a couple of weeks. It is also a nice place to start if your savings amount is small.

But if you will be holding your savings for several months, you might be better served by the two choices below.

Money market account

A money market account is a special type of savings account that usually pays higher interest rates.

The downside? It typically requires a higher minimum balance -- sometimes as much as $2,500 or $3,000 -- and allows only three to six withdrawals per month.

If you're going to hold more than a few thousand dollars and don't anticipate needing frequent access, this is a viable alternative to a standard savings account.


Certificates of deposit, or CDs, are savings deposits you pledge to hold for a specific period of time. These may or may not pay higher interest rates than a money market account.

Rates vary depending on the CD duration. For example, a six-month CD will pay a substantially lower rate than a five-year CD.

A lack of flexibility is the chief downside of putting your money into a CD. When your money is committed to a CD, breaking the contract early triggers a stiff penalty.

So, which account is best? I think the money market account offers the best of both worlds: more flexibility than a CD, with higher interest rates than a savings account.

Paula Pant helps people ditch the cubicle and live on their own terms. She's traveled to 32 countries, owns seven rental property units and hasn't had an employer since 2008. Her blog, "Afford Anything," is the gathering point for a tribe that refuses to say "I can't afford it." Follow Paula on Twitter: @AffordAnything.

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March 06, 2015 at 8:14 am

How about mutual funds

October 23, 2014 at 11:42 pm

At this point, your mattress is about as good as any savings, CD's, money market or that type of thing. Interest is so low everywhere.