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What's Best For Growth: CDs, Checking, or Savings Accounts?

September 18, 2019

Many of us are creatures of habit. Every day Apple’s legendary founder Steve Jobs famously wore the same blue jeans and black mock turtleneck (he had 100 made and stacked in his closet).1  Devotion to habit may be doubly true in financial matters. After all, many people have better things to do than, for instance, analyze how to get more than the paltry interest they’re probably earning on personal checking accounts.


But sometimes, changing habits can make us healthier, wiser, and perhaps even a bit wealthier. So, this article looks at America’s personal checking account habit, and when it’s best to consider moving some of your checking account balance to high yield savings accounts or certificates of deposit. They typically earn higher interest rates.


Checking Accounts: How Much Money Is Best For You?

First, let’s talk about the serious relationship many people have with their personal checking accounts. The average U.S. adult has used the same primary checking account for about 16 years—and 26 percent have for more than 20 years, according to a survey conducted for Bankrate and MONEY.2 Customers stick with their checking accounts because they appreciate the service and the accounts do a fine job of helping people track information for basic money management.3 According to a 2019 NerdWallet survey, conducted online by The Harris Poll, the average checking account balance among Americans with checking accounts was about $2,900.4


A number of factors can go into the decision about how much to keep on hand in your checking account.  MyBankTracker suggests always keeping at least enough money in your checking account to cover one month’s expenses. That can help you avoid dipping into savings in case of short-term concerns like illness or job issues.5  To err on the safe side, others suggest keeping one-to-two months’ worth of living expenses plus 30 percent, which helps to avoid overdraft fees.6


One idea to help establish what your monthly living expenses really are is to keep a daily log of your spending for three months. Include credit card purchases and payments that are automatically deducted from your account, like gym membership fees or loan payments. 


Of course, some folks just want to always have access to their funds. With checking accounts, you can withdraw funds anytime—instantly, in fact, with the debit card associated with most checking accounts—while there are restrictions on high yield savings accounts and CDs. Some key differences among checking accounts, online high yield savings accounts, and CDs are discussed in the next two sections.


Better Interest Rates On Saving Accounts and CDs

A key thing to keep in mind before routinely keeping all your funds in a checking account is how much interest you could be missing out on if those funds were placed in a higher-interest-bearing account. Interest rates on checking accounts are very low compared to typical rates for high yield savings accounts and CDs.


The average interest-bearing checking account delivers only 0.06 percent annual percentage yield (APY). Meanwhile high yield savings accounts generally offer around 2 percent APY and CD rates for a certificate maturing in two years generally offer around 2.5 percent to 2.9 percent APY ("Not Saving Enough For A Rainy Day? High Yield Savings Accounts and CDs Can Help").


Yet according to Bankrate, only 6 percent of Americans surveyed are earning more than 2 percent APY on their short-term savings. And just 12 percent are earning between 1.51 percent to 2 percent.7


The reason why brings us right back to “creatures of habit.” According to another Bankrate survey, the biggest reason people miss out on the higher interest possible from online high yield savings accounts is comfort level with their current financial institution. It was cited by 36 percent of respondents.8


Where High Yield Savings Accounts And CDs Make Sense

Once you’ve covered your basic checking account balance requirement, it’s worth considering a strategy for creating emergency funds and saving money for short-term priorities such as cars and vacations. This is where high yield savings accounts and certificates of deposit (CDs) can really help.


High yield savings accounts offer variable interest rates that are typically higher than regular checking and savings accounts from brick-and-mortar banks. They're also fairly accessible, though with some limitations in withdrawals (typically a maximum of six online and telephone withdrawals per monthly statement cycle). Where savings accounts have variable interest rates, CDs offer fixed interest rates that are generally higher than rates from savings accounts. But in return for the higher rate, funds can be accessed without penalty only when the CD reaches maturity, which is usually between 6 and 60 months ("Five Strategies For Getting More Out of Your Savings Accounts and CDs").


The Bottom Line


Old habits die hard, but folks who automatically put all of their disposable income into personal checking accounts may want to consider the very simple case for high yield savings accounts and CDs. A rule of thumb that works for many people is to keep funds on hand to cover one or two months of living expenses in their personal checking accounts. Investing the rest in high yield savings accounts and CDs could mean reaping the benefits of interest rates that are double or triple—or even more—the rate of your personal checking account.


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*The Annual Percentage Yield (APY) as advertised is accurate as of . Interest rate and APY are subject to change at any time without notice before and after a High Yield Savings Account is opened.


For a CD account, rates are subject to change at any time without notice before the account is funded. The rate received will either be (i) the rate reflected during your application process or (ii) the rate being offered when your CD is funded, whichever is higher. All CDs must be funded within 60 calendar days from the time we approve your application or will be subject to closure. The interest rate and Annual Percentage Yield (APY) will be disclosed in your account-opening documents, which you will receive after completing your account-opening deposit. After a CD is opened, additional deposits to the account are not permitted. Early CD withdrawals may be subject to significant penalties which could cause you to lose some of your principal. Please see the Deposit Account Agreement for additional terms and conditions and Truth-in-Savings disclosures.


**The national rate referenced is from the FDIC's published Monthly Rate Cap Information for Savings deposit products. Visit the FDIC website for details.


‡For purposes of transferring funds, business days are Monday through Friday, excluding holidays. Transfers can be initiated 24/7 via the website or phone, but any transfers initiated after 7:00 PM Eastern Time or on non-business days will begin processing on the next business day. Funds deposited into your account may be subject to holds. See the Funds Availability section of your Deposit Account Agreement for more information.


♢Calculations are estimates of expected interest earned. Actual results may vary, based on various factors such as leap years, timing of deposits, rounding, and variation in interest rates. The first recurring deposit is assumed to begin in the second period after any initial deposit.


§IRA Contributions are subject to aggregate annual limits across all IRA plans held at American Express or other institutions. IRA distributions may be taxed and subject to penalties based on IRS guidelines. Required minimum distribution, if applicable, is only relevant to this IRA plan and does not take into consideration other IRA plans held at American Express or other institutions. Please see for more information. We recommend you consult with a financial or tax advisor when making contributions to and distributions from an IRA plan account.