We all know that it’s wise to have a savings account, but there are different ones to choose from, and this can make things tricky. Which savings account would be the best fit for you depends on your needs and your financial goals. Do you want to be able to access your money quickly? How fast do you want your savings to grow? Below, we look at the main types of savings accounts available to help you make the best choice for your needs.
Types Of Savings Accounts
Deposit Savings Account
When you learned personal finance in school, this was likely the definition you learned for what a savings account is. Whether you go through a bank, credit union, or online alternative, these savings accounts can be opened easily with a small deposit of funds. Deposit savings accounts will all pay you some interest in its holdings, but that interest rate can vary widely from one institution to the next. You’ll want to shop around to see what interest rates are available to you, and you’ll also want to check if there are any fees involved. Some institutions will charge transaction fees or minimum deposit fees. If your savings account is something that you plan to put a lot of money into and then not touch it, most of these fees might not apply to you. But either way, if you can find an account option that has as few fees involved as possible, that’s always preferable.
Money Market Account
A money market account is very similar to a deposit savings account and will likely pay you a higher interest rate. You’ll also be able to write checks from your money market account, although with far less frequency than you would from a checking account – usually, it’s capped at about six transactions per month. Still, that’s something you can’t do at all in a deposit savings account. However, you’ll be required to maintain a higher balance in this type of account versus a deposit savings account. Please note, as we’re walking through these different types of savings account, that a money market account is a different thing than a money market investment fund.
Certificates Of Deposit
Certificates of deposit squirrel away your savings for a set amount of time. You won’t be able to access that money without accruing a penalty. When that time period ends, known as the “maturation of your term,” you’ll have the choice to reinvest your money in a new certificate of deposit for the same term length or withdraw your money. While being locked out of your money can seem like a huge tick in the con column, certificates of deposit traditionally have the highest interest rate of any of the savings account types. And the longer the term of the certificate, the higher your interest rate.
High-Yields Savings Account
While certificates of deposit traditionally held the highest interest rates, a more recent type of savings account called a high-yield savings account is now available through some institutions. You’ll have to pay monthly maintenance fees and maintain a minimum balance, but the interest rates offered on these savings accounts are currently the highest available. Make sure that the monthly fees don’t eat into your interest rate too much, and these will be a great option.
Types Of Institutions
Bank Savings Accounts
Let’s shift gears from talking about the different types of savings accounts to the various institutions that offer these accounts. Traditional banks are a solid option. They typically offer lower interest rates and might have more fees involved, but your funds are accessible at any time. You may be limited to how many transactions you can make, but you always have access to your money. Banks are also pretty steady and reliable, bolstered by various federal and state governments to some level, and have multiple governing bodies. Furthermore, the Federal Deposit Insurance Corporation typically insured bank savings accounts for up to $250k per depositor. Traditional brick-and-mortar banks might not offer the flashiest savings account options, but they’re safe.
Credit Union Savings Accounts
Credit unions are member-owned, non-profit cooperatives and can be managed at the local, regional, or national level. Being member-owned, they are more member/customer-focused than traditional banks might be. They are concerned about your profits as a member, rather than administrative or company profits as a bank. Some will offer fewer fees and higher interest rates than traditional banking institutions. They usually offer fewer banking services than larger banks, but if your focus is solely on savings accounts, then credit unions are a great option. Federal credit unions will ensure your funds through the National Credit Union Administration for up to $250k of your savings account.
Online Savings Accounts
In this technology age, some banks now function completely online. If in-person banking isn’t a priority to you, then an online bank might be a good option. Since there are no buildings to maintain or staff, they typically don’t have as much of an overhead as banks and credit unions, and so they are free to lessen or eliminate transaction or maintenance fees. Some people might prefer to bank in person or sort out tangles in a face-to-face conversation, but if banking from your computer and phone-based customer service is more your cup of tea, then an online-based banking institution would suit your needs well.