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So, you’ve set up an automatic savings program and you’re finally building up that emergency fund, but where should you keep your savings so that it earns the most interest for you? Luckily, there are many different savings vehicles available, but not all of them are appropriate for every situation.

Savings Accounts

Most likely, you have already established a savings account at your local bank or credit union, and you may have this linked up directly to your primary checking account to make transferring money to savings easy. A savings account is the most convenient place to save money, but it might not be putting your money to work.

When using a savings account, it is important to look at the interest rate. Depending on where you bank and what type of account you have, you could be earning anywhere from less than 1% up to 4% or more. The problem is that many banks only provide high interest rates for significant balances over a certain amount. If you find you are only earning 0.65%, after accounting for inflation, you are actually losing purchasing power. The best thing about savings accounts is that they are completely liquid. This means you can access your money on very short notice. You may be able to go online and transfer money from savings to checking, withdraw from an ATM, or stop into your local branch.

Money Markets

In addition to your basic savings account, you may encounter another savings vehicle called a money market. There are actually two different kinds of money market accounts: money market bank accounts and money market mutual funds. Money market accounts offered by your bank work almost the same as far as the consumer is concerned, but since the money held in a money market account is invested a bit differently, there are usually more restrictions on the account. Typical restrictions are usually higher balance requirements and a limited number of withdrawals per month or quarter.

Money market mutual funds are not issued by a bank, but are offered by investment companies. You would need to have an existing brokerage account or establish a new account with the fund company directly to take part in a money market mutual fund. These funds invest in various short-term investments collectively in order to produce an attractive interest rate. Unlike a money market account at your bank, these are not FDIC insured. Although money market accounts generally have higher interest rates than a savings account, the restrictions on the number of withdrawals per month or the requirement of opening a separate account makes these funds slightly less liquid.

Certificates of Deposit

A certificate of deposit, otherwise known as a CD, is another place to save money that is routinely offered by your bank. A CD is a time deposit, which means that the money you place on deposit must remain there for a specified amount of time before you can withdraw it. You can purchase a CD with a variety of time frames as short as one month to upwards of many years or more. In most cases, the longer you agree to leave your money on deposit, the more interest the bank will pay you.

Since you are required to leave your money in the CD for the amount of time selected, this can make your money less accessible than a savings or money market account. This can be a good thing, since it encourages you to leave the money alone, but in an emergency where the money is needed very quickly, this can be a hindrance. Fortunately, you can access your money before the CD matures, but the bank will impose a penalty which could effectively wipe out the interest you have earned.

Savings Bonds

Another possible option for your savings is in savings bonds. Savings bonds are issued by the U.S. government and are backed by its full faith and credit. Similar to CDs, savings bonds have a maturity date set in which the bond reaches the maximum value. In most cases, this is 20 or 30 years. Savings bonds are credited interest each month and you can cash in a savings bond at any time, although doing so prior to maturity may result in foregoing some interest. You can purchase savings bonds at most banks or online at Treasury Direct. Like CDs, you may encounter liquidity issues with savings bonds since they are purchased separately and you can only receive money from them through redemption at either a bank or by mail.

What is Right for You?

When it comes to savings, there isn’t a right or wrong answer. It ultimately depends on your needs. If you are using your savings for overdraft protection and want to have it available instantly in the event you need it, a savings account might be the most appropriate. If you are saving for a large purchase or something predictable a few months or years down the road, you can probably find better rates with a CD or possibly a money market fund.

For many people, it comes down to having a mix of multiple savings vehicles. There will be part of an emergency fund in a savings account at the bank, possibly some cash in a money market fund in an investment account, and some CDs or bonds stashed away for longer-term savings. Whatever the case may be, you want to make sure your money is working as hard as it can.