If you had $1,000 that you wanted to keep safe – and hopefully grow – what would you do with it? Would you consider a checking account, savings account, or certificate of deposit (CD)? Since each option treats your money differently, the answer isn’t always obvious. Learning how these accounts work is key to making smart money decisions and setting the stage for a strong financial future.
Katie Galloway, a retail sales officer at Sunrise Banks, says a common misconception consumers have regarding financial wellness is that bank accounts require a lot of money.
“Even setting aside just $5 a week can add up over time,” she says. “Having a separate account for those rainy-day funds is an important step toward financial security.”
Before choosing a product, it’s essential to understand how checking accounts, savings accounts, and CDs differ in functionality, earnings, access, and rules. This guide walks you through the basics and helps you align your money with your goals.
Understanding the Role of Each Account Type
To confidently choose your best option, it’s critical to understand what each account is designed to do.
Checking accounts meet everyday money needs:
- Making purchases
- Writing checks
- Setting up automatic bill pay and direct deposit
- Using cash apps
- Transferring money
- Making withdrawals or deposits
Savings accounts store money that you don’t need to access daily. Other functions include:
- Earning interest
- Saving for emergencies/short-term goals (travel, weddings, etc.)
CDs are a great option for funds you don’t need to access immediately. Other purposes include:
- Earning interest at a (typically) higher, guaranteed interest rate – locked in a fixed rate for a certain term, providing predictable returns.
- Saving for longer-term goals (house, automobile, etc.)
How Your $1,000 Can Grow in Each Account
The next step is to understand how your money can grow. Because each option operates under different rules, your $1,000 will perform differently depending on where it’s kept.
Money in a checking account will grow very little, if at all. Designed for access, not growth, most checking accounts don’t earn interest. Some accounts offer a low-yield interest rate from 0.01% to 0.07% annual percentage yield (APY) – earning ten to 70 cents per year on your $1,000.
A savings account may produce better results, but the increase remains minimal. While the exact percentage varies by bank, the national average is 0.40% APY, according to the Federal Deposit Insurance Corporation (FDIC). For your $1,000, this equals a yearly growth of $4.
If your primary goal is growth, a CD can deliver the best returns. APY on CDs can range from 1.6% to 4%, depending on the bank and term of the CD – adding $16 to $40 to your $1,000 annually.
Rules and Restrictions to Know Before Choosing
Interest rates are only part of the equation. Below are other factors to consider when deciding where to house your money – and they vary by bank.
Accessibility
- Checking account: Unlimited access to funds
- Savings account: May have monthly withdrawal limit
- CD: No withdrawals until CD matures
Minimum balance
- Checking account: $0 to $100 or more
- Savings account: May be required upon opening to avoid monthly fees
- CD: Often required upon opening
Fees
- Checking account: May include monthly maintenance/overdraft/ATM fees
- Savings account: May include monthly maintenance/minimum balance/excess transaction fees
- CD: Early withdrawal penalties
Because Galloway says avoiding fees is critical for financial security, she recommends a strategy called “CD laddering” – which staggers maturity dates to avoid tying up too much money long-term.
Your Path to Smarter Banking Decisions
Deciding between a checking account, savings account, or CD is about aligning your money with your goals – a powerful step toward financial wellness. If you’re still exploring your options, you’re not alone.
“Choosing the right account can feel overwhelming, especially with confusing terms and bank jargon,” says Galloway. “It’s important to seek guidance from a banking expert. Bankers are trained to ask the right questions and help you find not just any account, but the account that truly fits your needs.”
Sunrise Banks offers a diverse selection of personal banking products, including our Key Checking Account with no monthly service fees, Thrift Savings Account with simple features to help you prepare for the future, and competitive CDs with current APYs up to 4%.
Sunrise Banks also allows you to designate any of these accounts to support our Community Impact Deposits or our Net Zero Deposits programs. These options are available to both personal banking and business banking customers.
Sunrise Banks is an FDIC member, which allows our accounts to be protected up to $250,000 – giving you a reliable layer of financial security. Reach out to learn more and discover which path is right for you.