Savings accounts are an important financial tool. As interest rates on savings accounts are now on the rise, these accounts provide a safe and convenient option for depositing and accumulating money for short-term financial goals.
By setting aside a portion of one’s income each month in a savings account, individuals can avoid financial stress, plan for unexpected expenses and make steady progress towards a more secure financial future.
Savings accounts offer the security of FDIC insurance, meaning the money deposited is fully insured and available even in the event of a bank failure. Typically, there are no fees associated with having a savings account, though a minimum deposit and maintenance balance may be required.
The interest rate on savings accounts can vary greatly depending on the institution, so individuals should compare different offerings to assess which savings account best meets their needs.
Knowing what kinds of savings accounts are available will help you save the most money and reach your goals the fastest.
Since one of the main reasons to open a savings account is to earn interest, you should always compare the rates of different financial institutions before choosing the best account for you.
There Are 6 Types Of Savings Accounts
Are you ready to save? Read on to learn about the most common kinds of savings accounts.
Traditional Savings Accounts
Traditional savings accounts are the most basic kind of savings account. You can open one at a bank or credit union.
They might be the first thing that comes to mind when you want to save money in the short or long term.
There are many ways to open a traditional savings account online or at a bank with a physical location.
Most financial institutions have both online and in-person services, and some even have mobile apps to make things easier.
Before you open a savings account, you should always make sure that your deposits are safe. You won’t lose everything if the bank fails.
If you choose a bank, the Federal Deposit Insurance Corporation should protect the money you put in it. Institutions that are FDIC-insured protect up to $250,000 per depositor and account ownership category of your money.
Most credit unions are insured by the National Credit Union Administration (NCUA), which works a lot like the FDIC, but for credit unions.
When you put money in a traditional savings account, you usually get some interest on it. Still, the APY isn’t as high as it could be with other financial products or other ways to save money, which we’ll talk about in the next section of this article.
This type of account can give you a return of between 0.01% and 2% per year. Since it can vary a lot from one bank to the next, it’s always best to check with each one.
There used to be a limit of six withdrawals per month, but that limit is no longer in place. Institutions now let you make more than six withdrawals (but for a fee or a penalty).
The fee can be different from one bank to the next because each bank can decide for itself.
High-Yield Savings Accounts
With a high-yield savings account, you can get a higher APY without having to pay more fees.
Online banks are the ones that offer the most high-yield savings accounts (like online banks or online credit unions).
Since these banks don’t have to take care of the costs of a physical location, they can offer both low fees and a great APY.
Most of the time, there are no monthly fees, minimum balances, or initial deposits needed to open one of these accounts. Still, you’ll need to check because each has its own pros and cons and needs.
The only bad thing about an online savings account is that you can’t solve a problem by talking to a person in person. You can still get help, but you have to go online or call.
Most banks and credit unions that are only available online have great ways to help you from afar. Still, when choosing a financial institution, it’s important to keep in mind that you won’t get help in person.
You could also look at rankings and reviews of the bank’s mobile app and website to get a better idea of how good their customer service is.
Read more: See the best savings rates here…
Money Market Accounts
Another popular type of FDIC-insured savings account is the money market account.
Money Market Savings Accounts (MMSAs) is another name for them, but don’t get them confused with money market funds.
The latter is a different type of financial product, specifically an investment account.
In short, they are a mix of traditional savings accounts and checking accounts. They are a type of savings account, but they have some extra features that could be interesting to the person who owns the account.
Most of the time, these accounts earn a higher APY than regular savings accounts, which makes it easier to get to your money. You might have a debit card that you can use at ATMs, which isn’t usually part of a savings account. You might also be able to write checks.
As is often the case, these extra benefits come with extra requirements. Usually, you’ll have to keep at least $1,000 in your account or pay some monthly fees.
You can open a money market account in a branch or online, just like a regular account.
We talked about how you can only take money out of a traditional savings account 6 times, and the same rule applies here. Most of the time, they have to follow the same rules.
Be careful not to withdraw more than six times, because fees can add up. If you do it too often, the bank could also block your account or close it.
If you need to get money out of your account often, you should open a checking account, which is easier to use.
Certificates Of Deposit (CDs)
CD accounts, or certificates of deposit, are a great way to save for the long term.
Most of the time, if you leave your money in the account for longer, you will earn more interest. Not always, though, so pay close attention to the APY rate the account will earn.
Certificates of deposit require you to leave your money in the account for a certain amount of time, during which the account will earn interest and “mature.”
When the account is ready to be used, you can either leave the money there for longer or take the money out.
If you take money out of the account before the CD has reached maturity, you will have to pay high fees.
There is a way to avoid paying penalties for withdrawing money early and still get some cash before the maturity date. You can do this by making a CD ladder with several CDs, each of which has a different date when it will be paid off.
You’ll still earn more interest than with a regular savings account, and you’ll be able to get your money out whenever you need to, without any fees.
CDs are for saving money for a long time, so if you can, leave your money in the account for the set amount of time.
A CD term is the amount of time you agree to leave your money in the account. Most terms last between 6 months and 5 years. The interest you earn on the account will be higher the longer the terms you choose.
So-called “Jumbo CD” accounts offer special interest rates for large deposits, and online-only banks tend to have the best rates.
Read more: See the best CD rates…
Cash-Management Accounts
Cash management accounts, or CMAs for short, are not savings accounts. In fact, they aren’t even bank accounts.
They are in this article because the services they offer are similar to those of savings and checking accounts. They help you save a lot of money.
Cash-management accounts are places where you can temporarily keep some cash so that you can invest it later in a retirement account or a brokerage account.
You can find them at a lot of banks, investment firms, and Robo-advisors, which often work with banks to keep your money in an FDIC-insured account. Keep in mind that not all CMAs are insured by the FDIC.
The interest rates on CMAs are higher than those on high-yield savings accounts. They also have extra features like paying bills, transferring money for free, and writing checks, which are more common with checking accounts.
Depending on which brokerage or investment firm you choose, the perks will vary.
Since CMAs aren’t bank accounts, it can be hard to deposit or withdraw money from some of them. Try to pick an account that lets you get to your money quickly. Most of the time, e-transfers between CMAs and your bank account can solve this problem.
If you already have an investment account with the same company as your CMA, they can link the two accounts so it’s easy to move money between them.
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Read more: See the best robo-advisors…
Specialty Savings Accounts
There are many different kinds of specialty savings accounts. This term isn’t just used to talk about one account; it can also be used to talk about a group of accounts.
These accounts can be used to save money or even to make investments.
All of them are meant to help you save money for a specific financial goal that you choose.
They can also be used as emergency funds or to help a certain group of people.
Most popular specialized savings accounts:
The name of each account tells you a lot about what it is used for.
You’ll see that you can open some to save for specific financial goals, like a Health Savings Account (HSA) for medical costs. You can open some to save for a certain person (like custodial accounts, for example).
What’s The Best Type Of Savings Account For You?
At this point, we’ve talked about the main types of savings accounts. But which one should you choose based on your financial goals and plans for saving?
Before you choose the best savings account, here are the four most important things to think about.
Online Savings Account Vs. Traditional Savings Account
Are you okay with only being able to use your account online? Or would you rather be able to talk to a real person when you need to?
Online-only banks are very convenient because they don’t charge monthly fees and have higher interest rates than traditional banks.
But if you don’t think you’ll be using the Internet to manage your money, you might be better off with a traditional bank.
Fees
Fees are something you should try to avoid or keep as low as possible. Some savings accounts have minimum balances, minimum deposits, or fees to pay before you can start earning interest.
Some don’t charge fees, but you can pay some if you want a higher APY.
Many things could happen. Always pick the one that gives you the best return on your investment (ROI).
Interest Rates
You might want to open a savings account so that you can earn interest.
Since the annual percentage yields on different types of savings accounts are very different, don’t forget to look at both long-term and short-term ones before choosing one.
Checking Account Vs. Savings Account
Most of the time, checking accounts are used for everyday transactions. They have ATM cards, debit cards, and credit cards.
Checking accounts give you access to your money at any time. You can use them to pay your bills, write checks, get cash whenever you want, and spend money in general.
Most checking accounts don’t earn any interest, but some financial institutions now offer checking accounts that earn interest.
On the other hand, savings accounts earn APY, but they don’t have as many benefits as checking accounts.
Also, savings accounts can make it hard to get to your money, giving you less access to your money.
Remember that they are for saving money and making it grow, not for spending it.
There are some exceptions. For example, money market accounts, which are a type of savings account, have some extra features like checking accounts.
You can only take out a certain amount from your savings account each month. Most of the time, this limit is set at six withdrawals per month. If you go over this limit, you will have to pay a fee.
After all, it is their job to get you to leave the money in the account and not take it out.
READ MORE: SEE THE BEST BANK BONUSES HERE AND THE BEST INVESTING BONUSES HERE.
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