Savings accounts are an effective tool for individuals to set aside money for a wide variety of purposes. These goals can be as small as emergency funds or as large as long-term aspirations like retirement savings. Savings accounts can be opened at traditional brick-and-mortar banks, investment firms, and online financial institutions. They differ in terms of minimum balance requirements, monthly service fees, and interest rates. Understanding the different types of savings accounts can help consumers determine which is best for them. Standard savings accounts, offered by most traditional banks, are the most common type of account. They offer low-interest rates and can be accessed through an ATM, check, or online transfer. Many savings accounts also have a maximum number of monthly withdrawals and transfers, which can vary by institution. Some may require a checking account to be linked in order to avoid fees or unlock certain benefits.
Alternatively, consumers can look into high-yield savings accounts. These accounts offer higher interest rates than traditional savings accounts and can be opened at brick-and-mortar banks, online banking, and credit unions. These accounts are typically a safe place to store long-term liquid (spendable) savings and are FDIC-insured. However, these accounts tend to have stricter usage limits than other savings options. For example, you will likely be limited to six withdrawals or transfers per statement cycle (though this restriction has been temporarily waived due to the pandemic). In addition, these accounts usually have a higher minimum deposit requirement than standard savings accounts.
Savings Accounts with High-Interest Rates
Savings accounts that pay high-interest rates can be a great way to earn more money on your saved funds. However, you should keep in mind that the amount of interest your account earns will depend on how often the bank compounds the interest it pays, so be sure to evaluate the annual percentage yield (APY) when choosing a savings account. You should also consider whether or not the institution offers a convenient online banking platform, minimum deposit requirements, and other factors that may affect your decision.
Savings Accounts for Kids
Putting a child on the path of responsible money management is a gift that will benefit them well into their adulthood. By providing a financial tool that will encourage and motivate them, you can help your child learn the value of savings and how to budget for goals and emergencies.
A savings account allows kids to track their spending and save for things they want or need. It also helps them understand the correlation between choices and consequences. They can see the benefits of saving as their balance grows with interest, and they get a hands-on experience with online banking tools and services that will prepare them for future steps like opening a checking account or purchasing their first car.
When choosing a savings account for children, look for low minimum deposit requirements and low or no maintenance fees. You should also consider the APY or annual percentage yield and whether or not it comes with a debit card. Some banks and credit unions offer specialized accounts for children that are custodial, meaning the parent or guardian retains control over the funds until the child reaches an age set by the financial institution.
A good savings account will also have a mobile app, easy access to online statements, and provide a variety of educational tools that promote financial literacy. You should also consider the location of the bank or credit union and how close it is to your home.
Savings Accounts with Buckets
Depending on your situation, you might prefer a savings account that offers the ability to divide your funds into “buckets.” This can be beneficial for people with multiple financial goals or those looking for a way to motivate themselves to save. Having separate buckets can help you prioritize your savings and make it easier to keep track of your progress toward each goal. It can also help deter you from dipping into your spare cash to fund unrelated purchases. Many accounts offer the ability to create buckets and transfer funds between them automatically, which can make it even easier to stick to your savings goals.
If you have a long-term savings goal, like a down payment on a home or college tuition for your kids, consider an online Certificate of Deposit (CD). You can choose from different terms, from three to 10 years, and earn competitive interest rates.
Another option is to open a Money Market Account (MMA). An MMA typically has higher interest rates than a savings account and is easy to access, but you may have limited withdrawals. Many banks have a limit on the number of MMAs you can open and may charge fees if you exceed that limit. Some banks may offer relationship discounts or welcome offers if you open a new account.
The Most Common Types of Savings Accounts
Regular Savings Accounts: These are basic accounts offered by banks and credit unions that allow you to deposit and withdraw funds as needed while earning a modest interest rate.
High-Yield Savings Accounts: These accounts offer higher interest rates compared to regular savings accounts, making them a better option for growing your savings. They often come with certain requirements, like maintaining a minimum balance or limiting the number of withdrawals.
Money Market Accounts: Money market accounts are similar to high-yield savings accounts but often provide a higher interest rate. They might have limited check-writing capabilities and higher minimum balance requirements.
Certificates of Deposit (CDs): CDs are time-based savings accounts offering higher interest rates in exchange for depositing your money for a fixed period, known as the CD term. Early withdrawal might result in penalties.
Online Savings Accounts: Online banks offer these accounts and often provide competitive interest rates due to lower operating costs. They generally lack physical branches but offer convenient online and mobile banking options.
Joint Savings Accounts: A joint savings account is opened and owned by two or more individuals, such as a married couple. All account holders have equal access to the funds.
Children’s or Minor Savings Accounts: These accounts are designed for minors, typically requiring a parent or guardian as a joint account holder. They help teach children about money management.
Health Savings Accounts (HSAs): HSAs are designed for people with high-deductible health plans. They allow you to save money for qualified medical expenses on a tax-advantaged basis.
Individual Retirement Accounts (IRAs): While primarily used for retirement savings, certain types of IRAs, such as Roth IRAs, allow you to withdraw contributions without penalties, making them a potential option for emergency savings.
Specialized Savings Accounts: Some financial institutions offer specialized savings accounts for specific purposes, such as saving for a specific goal, like a vacation or a down payment on a house.