Types of Savings Accounts for Your Money
Thinking about opening a savings account? Read on to learn more about the different types of savings accounts, including traditional savings accounts, online savings accounts, money market accounts, certificates of deposit (CDs) and more...
- Savings accounts are a longer-term financial option for money you don’t need right away
- Opening a savings account is risk-free, as opposed to investing
- Most savings accounts earn some interest, which can be as high as around two percent
Types of Savings Accounts
Savings accounts offer a safe, secure, and long-term place to put money that you aren’t going to be using right away. Savings accounts are unique from an investment account because there isn’t a sense of risk associated with their use, and the money stored in a savings account is federally insured if the bank were to fail.
There are multiple reasons a person might open a savings account. They might want to have several accounts, each of which has its own unique purpose and goal. For example, one savings account might be an emergency fund, and the other might be a vacation account. Also, they do earn interest, although not a huge amount in most cases.
When someone is choosing a new savings account, they should consider relevant factors like the interest rate, the minimum balance requirement to open the account, whether or not a certain amount of money has to be kept in the account at all times, fees, and any perks or benefits that come with the account.
The following provides an introduction to some of the most commonly used types of savings accounts.
|Typical Interest Rate||Monthly Transactions Permitted||Fees|
|Certificate of Deposit||0.25% – 2.35%*||0||Minimal|
|Interest Checking||0.01% – 2.00%||Unlimited||Yes|
Rates as of January 2019
* Variable by term
Types of Savings Accounts
A basic savings account is one that’s usually offered by a traditional brick-and-mortar financial institution. Basic savings accounts often have very low annual percentage yields. The funds in a basic savings account are insured, and they can be linked with other accounts, such as a checking account. This allows account holders to easily move money into their savings account or set up automatic, recurring deposits.
- Depending on the financial institution, the interest rates on a basic savings account may be minimal and as low as 0.01 percent.
- Funds are federally insured.
- Withdrawals and transfers are limited to six times a month by federal law.
- Easy to open and typically have no minimum balance requirement.
Online Savings Account
There are now online savings accounts, most of which are offered by online-only banks. Ally and Synchrony are two well-known online banks, but there are others as well.
Online-only savings accounts tend to offer more competitive interest rates because they don’t have the overhead costs of traditional banks. An online savings account may have interest rates as high as two percent and in some cases even more. These accounts can be managed through a web-based browser, or in many cases on a mobile device. The fees associated with online savings accounts are typically minimal (if there are any at all). The specifics of an online savings account can vary pretty significantly depending on the account and the bank. For example, some online savings accounts offer ATM access to funds and include a debit card, while others don’t.
An online savings account might have some of the following features and things to consider:
- Many online-only banks offer rewards programs to customers.
- Online-only banks offer relatively high interest on deposited money.
- There’s no option to walk into a branch and receive help.
- With some online savings accounts, you may have to mail check deposits.
- You may also need a linked brick-and-mortar account to effectively manage an online savings account.
Money Market Account
A money market account is a bit like a hybrid of a higher-interest savings account and a checking account. Money market accounts usually have the benefit of higher interest rates, and these rates are often tiered depending on the amount a person has in the account. Money market accounts are insured by the FDIC at banks and at credit unions by the National Credit Union Administration.
Money markets offer more accessibility to deposits than other types of checking accounts, and account holders can write up to six checks per month. With a money market account, accountholders also often have a debit card that can be used up to six times per month.
Features of a money market account include:
- Interest rates are similar to online bank and high-yield savings accounts.
- The minimum deposit to open a money market is usually higher than with most other savings accounts—some require a minimum as high as $10,000.
- Money markets offer access to funds.
- A money market account is a good option for someone who has a significant amount of cash and wants to write checks.
Certificates of Deposit (CDs)
A certificate of deposit or CD is a savings account that usually has a higher interest rate than other types of accounts, but there isn’t much access to the money kept in a CD. CD rates are fixed and have a fixed date of withdrawal. This date of withdrawal is also called the maturity date.
A CD, like other savings accounts, is low risk because it is insured by banks and the FDIC up to available limits. There are also accounts called share certificates, which are offered by credit unions and are the same as CDs.
Some of the things to consider with a CD include:
- A CD is the most restrictive type of savings account because you have to leave your money in the bank for a set amount of time.
- If you try to take money out of a CD before the maturity date, you have to pay a penalty.
- The term lengths can vary from months up to five years or longer.
- The longer the term someone commits to, generally the higher the interest rate will be.
- Some CDs with the longest terms have rates above three percent.
Interest Checking Accounts
Another option that has some similarities to a checking account but also similarities to a high-yield savings account is an interest-bearing checking account. An interest-earning checking account is low-risk and provides the opportunity to grow your money passively, but you also have freedom and flexibility to write checks, make withdrawals, and make deposits.
Below are some things to know about interest-earning checking accounts:
- The amount of interest a checking account earns can vary quite a bit. Some might be as low as 0.01 percent, and others go up to nearly two percent.
- These accounts are likely to have monthly maintenance fees and balance requirements.
- Some interest-bearing checking accounts will require a minimum deposit.
- These accounts might include additional features such as bill pay.
If you have specific savings goals, specialty accounts are an option as well. For example, there are accounts called health savings accounts, which are specifically aimed at helping people save money to cover medical expenses. There are also options like 529 plans, which help parents save for the cost of their childrens’ education.
Not all savings account options are the same. Choosing the right one for you should be based on your goals, how much you’re going to initially be depositing, and how much access and flexibility you want.