Savings accounts might be a secure location to keep money that you don’t plan to spend right away.
These accounts are excellent for both short-term requirements, such as an emergency fund and long-term aspirations, such as putting money down for a down payment on a house.
There are various sorts of savings accounts available, and they are not all the same. Traditional savings accounts, high-yield savings accounts, money market accounts, certificates of deposit, cash management accounts, and specialty savings accounts are among the alternatives.
What are the greatest types of savings accounts to have, and how many should you have? It is determined by your requirements and objectives.
Knowing how different savings account alternatives compare might help you choose the best place to keep your money.
Savings Account Varieties
Differentiating between savings accounts entails looking at their characteristics, where you can open them, and what they’re intended to perform.
When comparing different savings accounts, it can be useful to ask the following questions:
- Is this account intended to serve a specific purpose or achieve a certain goal?
- What is the interest rate on this account?
- Is it necessary to make a minimum deposit or maintain a minimum balance?
- Is there a cost for this type of savings account at the bank?
- There is any tax benefit or advantage to having this savings account?
- How readily available is the money in the account?
- Will there be any fines if I withdraw money from the account?
This type of study might assist you in deciding which types of savings accounts to have. You can then decide where to open them and how to fund them.
1. Traditional or Regular Savings Account
Beneficial to People that need to save money for the short or long term and aren’t concerned with receiving the best interest rate, expressed as an annual percentage yield (APY).
Traditional savings accounts may be the first thing that springs to mind when thinking about where to save. These are the kinds of savings accounts you’d find at traditional banks or credit unions.
These types of savings accounts normally allow you to earn interest on your money, however at lesser rates than other forms of savings products. Many banks and credit unions will let you start standard savings account with a small deposit.
Traditional savings accounts normally enable you to withdraw up to six times per month (excluding ATM withdrawals and in-person withdrawals at a branch) without incurring a penalty. The six-withdrawal limit was removed from Regulation D regulations in 2020, but your bank or credit union may still charge you a fee if you exceed the monthly limit.
Banks and credit unions may allow you to manage your account online, through mobile banking, over the phone, or in person.
If your bank is FDIC-insured, your deposits are protected up to $250,000 per depositor, per account ownership category, in the event of a bank failure.
The National Credit Union Administration (NCUA) offers equivalent insurance to federally chartered credit unions and the majority of state-chartered credit unions.
Traditional or Regular Savings Account Advantages
- Opening a standard savings account at a branch is usually simple, and some banks now allow you to do so online.
- You may build your money by earning interest on your savings.
- If you need assistance or want to deposit cash, you can go to a branch.
Disadvantages of Traditional or Regular Savings Account
- Monthly maintenance fees have the potential to cancel out interest earnings.
- When compared to other savings choices, interest rates are often modest.
- Excess withdrawals may incur further charges.
2. High-Yield Investments Account
Ideal for People who want to receive a higher rate of return on their savings while minimizing costs.
High-yield savings accounts, which can be found through internet banks, neobanks, and credit unions, are savings accounts with a greater APY than conventional savings accounts. This is one of the best types of savings accounts for maximizing the growth of your money.
To attract depositors who want to earn a higher interest rate than what is available at traditional banks and credit unions, online banks frequently offer a variety of high yield savings accounts. This sort of savings account may be tempting if you want to manage your account through online or mobile banking rather than visiting a branch.
High-yield savings accounts, like ordinary savings accounts, are FDIC or NCUA insured. In addition to giving greater rates, online banks typically charge less or cheaper costs, such as monthly maintenance or overdraft fees.
High-Yield Investments Account Advantages
- When compared to standard savings accounts, you could receive a substantially higher interest rate.
- To start an account with an online bank, the minimum deposit is usually smaller.
- A monthly fee is less likely to be charged with an online bank.
High-Yield Investments Account Disadvantages
- You won’t be able to deposit cash into your account at a branch if you don’t have access to one.
- Transferring funds between an online savings account and another bank’s account can take several days.
- Depending on the bank, you may or may not be able to access your money through ATM.
3. Money Market Funds
People who desire to earn interest on their savings while having more possibilities for accessing their money would benefit from this product
Money market accounts (MMAs) combine the benefits of a savings account with the benefits of a checking account. These accounts are available at traditional banks, online banks, and credit unions.
You can receive income on your savings in these accounts, which are also known as money market savings accounts or MSAs. Rates are often higher than those of conventional savings accounts, and some give rates comparable to those of high-yield savings accounts.
Banks, like ordinary or high-yield savings accounts, might charge a fee if you make more than six withdrawals per month, even though the federal Regulation D restrictions have been relaxed, allowing for easier access to your assets. Going over your monthly limit may result in a fine or the institution canceling your account if it occurs frequently.
Money Market Funds Advantages
- Money market accounts can provide higher interest rates than other forms of bank savings accounts.
- You may be able to write checks from your account or use a debit or ATM card to access your funds.
- Money market accounts can be opened at either traditional or internet banks.
Money Market Funds Disadvantages
- To start a money market account, a greater minimum deposit may be required.
- Interest rates may be tiered, which means that a bigger balance is required to obtain the best rates.
- Money market accounts may be subject to a monthly fee levied by banks.
4. CD Account
Ideal for People who wish to earn attractive returns on their savings but don’t need to use them right immediately.
Certificates of deposit (CDs) are time deposits, which means you agree to keep your money in the account for a specific amount of time. During that period, your money collects interest, and when the CD matures, you can usually withdraw it or roll it into a new CD. Because there is a time aspect at work, these accounts differ from other forms of savings accounts.
- CDs can be purchased from both traditional and online banks. Online banks typically provide higher interest rates than traditional banks.
- CD periods can be as short as 30 days or as long as 60 months, with longer terms normally offering greater rates—though not always, particularly in a low-interest-rate environment.
- CDs are ideal for the money you know you won’t need right away because banks can incur an early withdrawal penalty if you remove your savings before the maturity date. Creating a CD ladder with many CDs with varied age dates can provide a solution to this problem.
CD Account Advantages
- CDs can provide above-average interest rates for savers with short- or long-term goals.
- CD accounts normally do not have any monthly maintenance costs.
- Online banks may have reduced starting deposit requirements for CDs.
CD Account Disadvantages
- Withdrawing funds from a CD before it matures may result in an early withdrawal penalty.
- CDs at traditional banks typically have lower interest rates than CDs at online banks.
- Investing in a longer-term CD makes it more difficult to profit from future interest rate hikes.
5. Account for Cash Management
People who want to retain cash on hand to invest in a brokerage or retirement account can benefit from this product.
Cash management accounts differ from other types of savings accounts in that they are not established primarily for saving. These accounts, on the other hand, allow you to keep cash that you intend to invest in a taxable brokerage account or a retirement account.
Cash management accounts may be available to investors through online brokerages and Robo-advisor platforms. The money in the account can generate interest, generally at a higher rate than with a bank.
Depending on the brokerage, you may also receive all of the basic features of a checking account. You may, for example, be able to write checks, pay bills, or transfer monies to bank accounts.
Account for Cash Management Advantages
- They’re an easy method to earn income on money you’re planning to invest.
- Cash management accounts can provide the same benefits and functionality as checking and savings accounts.
- By cooperating with numerous banks, accounts may offer higher-than-normal FDIC coverage limitations.
Account for Cash Management Disadvantages
- High-yield savings accounts may provide higher interest rates on your savings.
- Because they are linked to online brokerage accounts, you may not be able to use branch banking.
- These accounts are not always insured by the FDIC.
It’s crucial to realize that you don’t have to choose just one savings account. Depending on your financial goals, you may wish to create multiple savings accounts, CD accounts, money market accounts, or specialized accounts. Consider your financial objectives when looking for the right account for your needs.