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If you have some money, you need a place to keep it for awhile. Maybe you're saving for a family vacation, keeping the money set aside for emergencies, or for a new car. Whatever the reason, any short term savings you choose must meet your needs for the following if you want it to benefit you:
Accessibility:
Consider how often you'll need to pull money from the account, and your preferred method of getting the money out. Do you want the money accessible by ATM? Or do you want to make it slightly more difficult so it's not as tempting to pull out the money before you really need it?
Penalties:
Even if you plan to save your money for the next four years until you take the big family trip to Europe, what happens if your plans change and you need access to the cash? How much of a penalty, if any, are you willing to pay to get access to your money?
Interest Rate:
If you're opening a short term savings with a fairly large amount, you should be awarded with a decent interest rate. Typically, the more money you save the higher your interest rate, but it depends on a number of other factors as well. Make sure that whatever account you choose for short term savings has a reasonable interest rate to help your money grow while it's stored there temporarily.
You have a number of options for short term savings, including:
Interest Earning Checking Accounts:
A checking account is not ideal for saving money because they are meant for transactions. Most don't pay high interest rates, but there are a number of banks which will let you earn interest on your checking account balances. Online checking accounts tend to pay better interest rates.
The benefit of saving short term savings with a checking account is that it's very easy to access via checks or ATM machines.
Savings Accounts:
A savings account, or passbook savings, used to be the most popular option for short term and long term savings. Unfortunately, the amount of interest you earn with a savings account is rarely enough to keep up with inflation, so don't expect to earn a ton of interest using a traditional savings account. Online savings accounts offer higher interest rates than most of your local banks.
High Yield Savings and Checking Accounts:
For anyone saving money to cover their monthly expenses, high yield accounts are a good way to earn interest on the money you're storing that you need frequent access to. Look for accounts with no limits on the number of transactions you can make each month, and keep an eye on the online banks as they offer the highest high-yield savings and checking accounts.
The potential disadvantage is that you'll have to get used to transferring money back and forth between your online high-yield account and your offline bank to make deposits (that aren't made through direct deposit).
Money Market Deposit Accounts:
The potential disadvantage of saving with a money market deposit account is if you go over the maximum number of transactions for a month you end up paying a fee per transaction. You also must maintain a minimum balance in most cases to avoid a monthly fee.