While you’ve no doubt heard of savings accounts, do you know how many there actually are to choose from? Like a lot of bank accounts, savings accounts tend to all get grouped together under one name, when in fact there are numerous types of accounts to pick from depending on your saving goals.
Whether you’re looking for a place to stash your money in the short or long term, to make extra returns off it, or even just to avoid paying too many fees, there are a lot of features to take into consideration before choosing the perfect place for your funds. Here are six of the most popular savings accounts available, plus some helpful tips on choosing the right one for your money.
Above-average interest rates with easy access to funds
High-yield savings account
High interest rates
Certificates of deposit
Competitive interest rates
Specialty savings accounts
Traditional savings accounts
This is the type of savings account most people think about when talking about anything savings-related. These accounts, also called regular or basic deposit accounts, are typically relatively easy to open at just about any local bank or credit union and require fairly low minimum deposits. While you likely won’t earn the most competitive interest rates on these basic interest-bearing savings accounts, you do have the freedom to access your money if and when you need it.
A good general rule of thumb for all savings accounts is that the longer you agree to leave your money untouched, the better the interest rates and the more returns you earn off your deposits.
Since basic savings accounts typically set fewer guidelines on withdrawals, the interest rates tend to be lower. According to the FDIC, the current average annual rate— also called APY (annual percentage yield) for regular savings accounts is 0.05%.
That means that if you deposited $2,000 into a savings account, you’d earn $100 back on it every year. If this seems minimal, that’s because it is. But what you lose in interest, you gain in flexibility. Since most of these basic savings accounts typically allow you to make up to six withdrawals per month without incurring a fee and don’t set rigorous rules around having a certain minimum balance, it’s unlikely you ever run into any issues accessing your money.
If the bank you use is FDIC-insured, your money will also be protected up to a value of $250,000 per depositor, which can offer some peace of mind in an unstable economy.
Credit unions offer a similar form of protection under the National Credit Union Administration (NCUA). One thing to keep in mind is that many of these savings accounts charge a monthly service fee, which may cut into any returns you receive on interest earnings.
Last but certainly not least, traditional savings accounts are also convenient in how easily you can access your money. Many of these savings accounts with traditional banks allow you to manage your account via in-person, online, or even mobile banking.
If you’re looking for a way to save money (besides under the mattress) but aren’t sure how long you might want to save it for, a traditional savings account can offer a safe way to store your money, earn a bit of interest, and still be able to withdraw funds whenever you need to.
Money market accounts
If you were to combine the benefits of a higher-yield savings account with that of a checking account, you’d end up with something pretty close to a money market account (MMA). These savings vehicles tend to yield higher returns than the average 0.05% of most traditional savings accounts, while also offering some of the perks of a checking account— mainly being able to withdraw money using written checks or in some cases, even a debit card.
The current average rate for money market accounts is 0.07%, a slight increase over traditional savings accounts. Also called money market savings accounts (MMSAs), these accounts typically impose the standard six-withdrawals-per-month limit.
However, because of the Federal Reserve Board’s recent changes to something called Regulation D, which handles the classification of savings funds and how banks treat them, this six withdrawal limit may no longer apply in some cases. Just be aware that even with the relaxation of Regulation D (which happened largely in response to COVID relief for consumers), banks can still charge you a fee for going over their set withdrawal limit — which may be more or less than six times per month.
Because MMSAs can be obtained through both brick and mortar banks as well as online banks, the same rules of FDIC protections may apply. The one and possibly only real caveat to MMAs are the minimum deposit requirements.
And herein lies the second half to the savings account equation: Banks will not only pay out higher interest rates for money that sits untouched but may also pay higher interest on higher deposits and higher maintained balances.
Since you can expect to earn above-average returns on your savings with an MMA, most banks also require you to have a minimum initial deposit (and ongoing balance) of at least $1,000. Depending on the bank and the type of account, this number could also be higher — anywhere up to $5,000 for those with the best APYs.
One last thing to keep in mind with MMAs is that some banks may charge a monthly maintenance fee, although these tend to be relatively low compared to other types of savings accounts.
If you’re looking to make the most of your savings and comfortable working with an exclusively online savings account, then you might want to consider getting a high-yield savings account. Because many high-yield savings accounts are offered from online-only banks, you may not be able to make deposits in person. But that doesn’t mean these banks don’t have any sort of customer service — most can still be reached by phone, and online account management allows you to check your funds or make transfers whenever you need to.
Many high-yield savings accounts still allow for the standard six withdrawals per month, but with interest rates around 1% (as opposed to the average 0.05% for traditional savings accounts), you’re better off not touching your money unless you plan on investing it for even higher returns elsewhere. Although some high-yield accounts might set a minimum opening deposit, many don’t.
Many high-yield savings accounts also charge low fees as compared to other types of savings accounts. And if you’re worried about your money being protected, remember that many online financial institutions are still FDIC-insured, despite not having a physical presence.
The two main setbacks to be aware of when using a high-yield savings account are accessibility, and whether or not you feel comfortable managing your money online. Depending on the bank you choose, you may or may not have ATM access to your funds, which might mean initiating an online transfer into your checking account should you need to access your money. Since online transfers can take several business days to process, and you’ll ultimately make more money on your savings if you have a higher balance, these types of accounts are best for the online-savvy saver who doesn’t plan on making too many withdrawals.
Another type of savings account to consider is something called a certificate of deposit (CD). The most important thing to know about these savings accounts is that they’re considered time deposits, meaning you agree to keep your money invested in the account for a set period of time.
CDs are available from a variety of brick-and-mortar as well as online banks and range in time limits anywhere from one month all the way to five years. As you can imagine, the interest rates for these accounts vary as well, with the lowest average rates being 0.04% for one-month CDs, while five-year CDs tend to be closer to 0.32% annual returns.
Once the terms of your CD expires, you can either withdraw the funds and place them elsewhere, or roll them over into a new CD. Because of the imposed time limits on CDs, many people choose to use a strategy called the CD ladder — which has you investing money into CDs that expire (or reach maturity) at different dates. By staggering your investments, you’ll have access to various amounts of cash at different times. But this strategy also means you stand to earn less in interest, since the longer the CD term, the higher the interest.
Like the other savings accounts on this list, CDs are typically provided by FDIC-insured banks, so your money is protected up to $250,000.
One thing to keep in mind is that some brick-and-mortar banks may offer lower interest rates on CDs than online banks, so be sure to shop around for the best rates before settling on a bank.
Finally, remember that because CDs are timed, there will be penalty fees for early withdrawal. If you think there’s a chance you’d need to withdraw your money before the set amount of time, be sure to familiarize yourself with those fees or consider using a different type of savings account altogether.
While not strictly a savings account, traditional IRAs and Roth IRAs are a great way to supplement your retirement savings, whether you have a 401k through your employer or not.
The main difference between the two accounts is that traditional IRAs allow you to make pre-tax contributions (which you pay taxes on when you withdraw funds later), while with Roth IRAs you’ll never be required to pay taxes upon withdrawal since the money you deposit has already been taxed.
The best way to choose which of these two accounts is best for you is by determining if you think you’ll be in a higher or lower tax bracket when you reach that golden retirement age of 59½. If you think you’ll be in a higher tax bracket (ie. earning more income) or a lower one (earning less).
If you believe you’ll be in the same tax bracket or a lower one, a traditional Roth makes more sense, since this will allow you to pay taxes on these savings at a lower rate when you reach retirement age. If however, you believe you’ll be in a higher tax bracket when you hit retirement, a Roth IRA would be best — since this allows you to deposit taxed money into your account and never pay taxes on it again, even when you begin to withdraw funds during retirement.
The key thing to remember about these types of savings accounts is that they’re specifically designed to be savings for your retirement — meaning, you won’t have early access to that cash and could incur penalties for withdrawing any funds before you reach 59½.
Unlike typical savings accounts, the returns you receive on IRAs depend on the selections you make, as in, where your money gets invested. Rather than earning interest, you’ll earn returns based on how well your investments with the IRA perform in any given year.
A final thing to keep in mind is that while many IRAs don’t have minimum deposit or balance requirements, they do have maximum deposit limits. Since there are tax benefits associated with both accounts, you won’t be able to deposit more than $6,000 annually into an IRA unless you’re over the age of 50, when you can deposit up to $7,000.
You’ve probably heard of specialty savings accounts informally, like when someone says they’ve started a travel fund or an emergency fund. Specialty savings accounts are pretty much exactly what they sound like— savings accounts created for the purpose of reaching a particular savings goal.
Specialty savings accounts can live in any of the various account types we’ve mentioned above, from traditional savings accounts to high-yield or even money market accounts. Where you invest your savings will depend on your personal finance goals for that particular account. For example, if you plan on saving money for a young child’s college education, you may choose to do so in a long-term CD. Since the money won’t be needed for several years, you can take advantage of that by earning higher interest rates on your savings.
If you plan on creating a travel fund, an emergency fund, or some other type of specialty account that you’ll tap into at regular intervals, then it may make more sense to open up a high-yield savings account or a money market account that allows for semi-regular withdrawals without incurring any penalty fees.
Summary of savings accounts
Type of account
Traditional savings accounts
Money market accounts
High-yield savings account
Low to none
Low to none
Certificates of deposit
Penalty for withdraws
None, but penalties for early withdraws
Specialty savings accounts
Are savings accounts safe?
Any savings account that’s placed in an FDIC-insured bank (or NCUA-protected credit union) is covered for values up to $250,000 per depositor. This means that even if the bank fails, your money is insured up to that amount.
What are the 3 types of savings accounts?
While there are many different kinds of savings accounts, the three most common ones are traditional savings accounts, money market accounts, and certificates of deposit (CDs). Any of these accounts will provide a safe way for you to store your cash, while also earning various degrees of interest.
What is the typical minimum balance for a traditional savings account?
For many savings accounts, you can get started with as little as $1. While some high-interest earning accounts like money market accounts or high-yield savings accounts require higher minimum deposits and balances, many traditional savings accounts don’t.
What to consider with a savings account
There’s a lot to consider when deciding which savings account is right for you. One of the best ways to get started is by thinking about how much money you plan on saving and how long you’d like to leave it in any given account. This will help determine whether or not you meet certain minimum deposit or balance requirements from higher-yield savings accounts, or if you’d be eligible to try a time deposit in a CD.
Once you know roughly how much money you have and how long you’d like to stash it away, spend some time shopping around various accounts and banks to secure the highest interest rates. Be sure to familiarize yourself with bank policies and any penalties or fees associated with your chosen account as well.
The bottom line
Ultimately, choosing a bank account depends on two things: What kind of saver you are, and your personal finance goals. Before depositing your savings into any account, make a list of your goals and be sure the accounts you’re looking at can help you meet them. A lot of this will be determined by the length of time you’d like to save your money (short or long term), how accessible you need the funds to be, and how much interest you’d like to earn. Once you have these things down, finding the perfect savings account for your needs will be a lot easier.
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