Banking products, such as checking accounts, savings accounts, and certificates of deposit (“CDs”), are designed to serve a variety of purposes for consumers and businesses who utilize these products. A checking accounts is designed to conduct transactions, while savings accounts and CDs are designed for the storage of short term and medium term cash reserves. For an individual or family cash reserves are oftentimes maintained as an emergency fund or to fund short term or medium term financial needs or objectives.
A checking account is designed to conduct a larger volume of transactions than a savings account. There is typically no limit on the number of monthly transactions in a checking account; banks may even encourage a larger volume of transactions through various means. Checking accounts may have higher fees, and typically pay lower interest rates than savings accounts. They are designed to fund immediate financial needs.
A savings account typically has a lower fee and pays a higher rate of interest than a checking account, and is designed to be accessed and transacted in by the account holder less frequently. There may be monthly limits on the number of transactions which can be conducted, or additional fees if certain transaction limits are breached. These accounts are designed to fund short term financial needs.
Certificates of deposit
A certificate of deposit, or CD, is designed as a vehicle to store cash for a medium term need, typically 3-12 months, although banks frequently issue CDs for much longer time periods than this. In a CD a fixed sum is deposited into the product and can not be accessed for its duration without subjecting the depositor to a withdrawal penalty. The interest rate on a CD is typically higher than that of a savings account, and tends to increase along with the duration of the particular CD product. In some cases, the bank will pay a higher interest rate if the deposit size exceeds a certain amount.