Depending on your needs and how often the money needs to be accessed, there are several types of interest-bearing accounts to choose from with a bank. The accounts with the most interest will give you the least access to your funds. Many benefits can be gained by having the right amount of money put into several types of accounts.
Many banks are now offering checking accounts that accrue interest. This is usually the lowest amount of interest available by the bank, but it also provides the most accessibility to your money. Even though it doesn't offer the most earning power, this is a basic type of account you will want for day-to-day business.
Savings accounts will offer more interest than your checking account. The main purpose of a savings account is to provide an account in which to place saved money while earning interest. Even some of the highest paid savings accounts only offer enough interest to cover cost of living expenses. Both checking and savings accounts are covered by FDIC insurance, making them secure.
Money market accounts are a combination of checking and savings. Higher interest is accrued from a money market than a typical checking account, but the amount of withdrawals are limited. Checks can be written directly from most money market accounts, giving them an added benefit over savings accounts. Money market accounts will earn more interest than traditional savings accounts if more money is added to the account. Money markets require larger deposits to start.
Certificate of Deposit
A certificate of deposit, or CD, offers the highest interest of all the different type of bank accounts. Since money put into a CD is used by the bank to issue loans, it is not accessible to the depositor unless a fee is paid. Most CDs are issued for six months to five years; the longer the term you take on the CD, the higher the interest the bank pays. Another determining factor in the rate paid on CDs is the amount of the deposit; larger deposits typically earn higher interest. To maximize interest earned, take out a five-year CD with the most money you can do without for the term.
When looking to place your savings into an account with the highest interest you are looking for, then a CD is what you need. All banks offer different rates on each type of account; some banks offer multiple options. Even though it pays the highest interest rate, placing all of your money into a CD is not recommended as you will not have liquid, or accessible, funds in the case of an emergency until the deposit matures.