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What Is an Interest-Bearing Account?

Hattie Burgher  |  October 18, 2018

No matter your savings goal: college costs, a tour of the West Coast or an emergency fund — you know, for when you accidentally back into your neighbor’s mailbox (happens to the best of us) — you’ll need a place to keep that money safe.

Setting up an interest-bearing account can help you with the whole “out of sight, out of mind” thing. But, first things first: What IS an interest-bearing account?

What Are Interest-Bearing Accounts?

Essentially, interest-bearing accounts are places where you can keep your money safe while earning interest. When you deposit money into an interest-bearing account, you earn money on what you deposit (that’s where the “interest” part comes in).

Types of Interest-Bearing Accounts

Not all interest-bearing accounts are created equally, so it’s good to know what kinds of accounts are out there — and which suits your savings goals best. Here are the different types:

Savings account: Aka the white bread of interest-bearing accounts. These are super basic (no, I don’t mean taking-a-selfie-while-holding-your-pumpkin-spice-latte kind of basic), day-to-day accounts that most banks offer. You usually can link your savings account to your checking account; they often come with low interest rates, and it’s typically easy to access your money. These are good to have for stashing your emergency fund, but not so great if you struggle to save, since the money is easy to withdraw.

Money market account (MMA): This type of account is a hybrid between a savings and checking account. MMAs typically require a larger minimum deposit, but they come with the perks of a checking account —  like check-writing ability and debit card usage. Depending on the bank, MMAs may offer higher interest rates than savings accounts.

Certificates of deposit (CDs): A CD is an account that has a fixed interest rate and a fixed date of withdrawal. CD lengths can range from months to years — and the longer you keep your money in a CD, typically the higher the interest rate climbs. A CD would be a good place to put savings — like for a house or a car — that you don’t plan on touching for a longer amount of time, since withdrawing early can incur penalties.

Interest-Bearing Account Caveats

It’s important to note that interest-bearing accounts may also come with some annoying fees (if you don’t meet the required minimum balance) and limitations (on withdrawals), so be sure to read the fine print before opening a new account.

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