Do checking accounts or savings accounts earn interest?

When you're envisioning your financial plan, you want to find ways to make your money work for you. Interest-bearing accounts can be one way to do that. But not all of your bank accounts earn interest.

For instance, while your checking accounts and savings accounts both come with FDIC insurance, they treat interest differently. Let's compare the two.

Do checking accounts earn interest?

Generally, checking accounts don't earn interest. However, they do offer other important banking benefits:

• Checking accounts often require a lower minimum balance compared to savings accounts.
• You can pay bills from your checking account, mail written checks and authorize your employer to send your pay via direct deposit.
• You can conduct a large number of transactions, including ATM withdrawals.
• Depending on how you intend to spend your account balance, you can ask about extended features such as a linked debit card.

Although most basic checking accounts don't earn interest, you may have additional options if you plan to maintain a larger checking account balance. For example, a Citizens Quest® Checking account allows you to earn interest when you deposit a specified amount each month or maintain a certain minimum balance across multiple accounts.

Do savings accounts earn interest?

Yes, most savings accounts earn interest, but the rate can vary. When you open a new savings account, ask about the different options available and how you can earn the highest interest rate.

How does interest work on a savings account?

Earning interest on a savings account balance can help motivate you to reach your financial goals faster. Rates are stated on an annual basis, but you typically accrue interest on your balance each month.

To calculate the interest you'll earn, multiply your account balance by the interest rate. Then adjust this amount for the applicable time period. So if you keep $1,000 in a savings account and your bank pays 4% interest, you can expect to earn $40 each year, or $3.33 per month.

Various factors may influence the amount of interest you earn. Bank interest rates tend to follow an underlying base rate, such as the federal funds interest rate set by the Federal Reserve. The amount of money in your account and the type of account you choose may also affect the interest rate you receive.

Are there other deposit accounts that earn interest?

In addition to a traditional savings account, you may want to explore other interest-bearing accounts.

Money market accounts

Money market accounts generally require a higher minimum balance requirements than traditional savings accounts. They offer a combination of checking and savings account features, such as the ability to write a limited number of checks each month while still earning interest.

Certificate of deposit (CD) accounts

Certificate of deposit (CDs) accounts allow you to make an initial deposit and earn interest on the balance over a set period, such as six months or one year. If you withdraw funds from the CD account before that time, you typically have to pay an early withdrawal penalty.

Brokerage accounts

Brokerage accounts are investment accounts where you can buy and sell interest-earning federal money market funds as well as stocks and bonds.

Choosing the right bank account for you

Understanding how you plan to use your money and which account features fit your financial goals can help you choose between checking accounts or savings accounts.

• While traditional checking accounts typically don't earn interest, you can use them to complete day-to-day tasks such as paying bills and accessing an ATM for cash.
• Savings accounts can help you meet longer-term financial goals like building funds for a future home purchase while earning interest on the balance.

Ready to start saving? Earn interest on your money by opening a savings account with Citizens.