What are the different types of savings accounts?
Generally speaking, there is only one type of savings account. Some savings accounts may be called high-yield savings accounts but that doesn’t necessarily mean that they offer higher yields. Money market accounts also fall under the official definition of savings deposit accounts.
Some banks may also offer special savings accounts for children, while other institutions may one one account for everyone but allow accounts to be titled as custodial savings accounts.
Here are some possible titling options to designate the owner(s) of a savings account:
- Individual account: An account owned by a single person. No one else is allowed to access this account. (An exception can be if someone has a power of attorney for the individual account holder.)
- Joint account with rights of survivorship: If two people have a joint savings account — with no other beneficiaries on the account — and one of the joint owners dies, the account is paid to the living account holder.
- Payable on death (POD):If an individual savings account has one or more beneficiaries listed and the account owner passes away, these beneficiaries will receive the balance of the account. Appropriate proof, generally a death certificate, is needed. A beneficiary on a joint account, listed as POD, wouldn’t obtain a right to this account until the last account owner passes away.
- Uniform Transfers to Minors Act/Uniform Gifts to Minors Act (UTMA/UGMA): Typically, these types of accounts stipulate one custodian and one minor. The custodian manages the account for the minor until the child reaches age 18 or age 21, depending on the state.
Not all savings accounts are created equal. Many online banks, for example, pay higher yields than their brick-and-mortar counterparts. When choosing a savings account, consider APY, minimum deposit requirements and your financial goals. The best savings accounts should provide a competitive APY, but also give you the flexibility to securely withdraw or transfer money each statement period.
Online savings accounts vs. traditional savings accounts
One big difference between savings accounts offered by online banks and those offered by traditional banks is the APY offered. Online banks usually offer much more competitive yields. Brick-and-mortar banks tend to offer something closer to the national average, which is currently 0.06 percent APY, or they offer something that’s nearly nothing — 0.01 percent APY.
Another difference is branch access. Online banks offer savings accounts that give customers the ability to bank from anywhere at any time, but these online institutions typically don’t have any branches — so customers can’t visit them in person to perform basic banking tasks. Here's how to make deposits into an online savings account:
- Direct deposit
- Mobile check deposits
- ATM deposits
- Mailing in checks
- Electronic funds transfers
- Wire transfers
In addition to offering branches for conducting bank business, some banks may provide an ATM card and/or a debit card for ATM access. Depending on the bank, you may be able to electronically transfer the money to an account that you hold at another bank. Other possible options for accessing money are cashier’s checks or official bank checks or by initiating wire transfers, which, generally, are more expensive methods.
Here are some of the ways withdrawals can be made from an online savings account at a traditional bank:
- ATM withdrawals
- Debit cards
- Checks
- Electronic funds transfers
- Wire transfers
- Requesting a mailed check
Savings accounts are limited by Regulation D, which limits the number of transfers or withdrawals from the account to six per calendar month or statement cycle of at least four weeks.
Transfers, which are similar to withdrawals, made online, via check or some other method made by the depositor and payable to third parties apply toward your six-transaction limit. Withdrawals from ATMs are not counted toward the six-transaction limit, and many banks offer ATM access for savings accounts.
In late April 2020, the Federal Reserve Board announced an interim final rule to amend Regulation D so that consumers can make an unlimited amount of withdrawals or deposits from savings accounts. Banks aren’t required to suspend the rule, however, so the six-limit rule may still apply.
Requirements for opening a savings account online
Banks will likely have some slightly different requirements for opening a bank account online, though most require U.S. citizens to provide a form of ID and a social security number.
Here are sample requirements at three of the largest banks in the U.S. for opening a bank account.
Bank
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Do you need to scan/submit your driver’s license/photo ID?
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Do you need to lift a credit freeze/security freeze? (If you have one)
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Do you need to fund the new account immediately using an existing routing number/account number?
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Bank of America
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No
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Yes
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No for checking and savings accounts, but yes for CDs.
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Chase
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The online application requires information provided on an ID.
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Yes
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No. You have 60 days to fund the account and will be closed if not funded within 60 days.
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Wells Fargo
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ID information can either be entered on the website or a photo of the ID can be taken and submitted.
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Maybe. A visit to a Wells Fargo branch may be required.
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Yes, a deposit of at least $25 is required.
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Online banks vs. brick-and-mortar banks
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Online Banks
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Brick-and-Mortar Banks
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Pros |
- These banks tend to offer higher yields than the national average.
- Since these banks usually don’t operate their own ATMs, they might be more likely to be a part of a large network of ATMs. Online banks might also be more likely to have a policy for reimbursing out-of-network ATM fees.
- Online banks tend to not have minimum balance requirements or charge monthly service fees.
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- Choosing a local bank means you’ll be able to visit that location for in-person customer service.
- Withdrawals from your savings account can be made in person.
- There might be quite a few ATM locations in your neighborhood and when you travel.
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Cons
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- Usually an online bank won’t operate a branch that you can visit to solve problems or make an in-person withdrawal.
- Deposits and withdrawals often require digital or mobile access.
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- It’s rare for a brick-and-mortar bank to offer a competitive APY.
- In-person hours might not work for your schedule.
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Why do online banks pay more interest?
In some cases, the biggest banks still pay their savings account customers less than 0.06 percent APY — the national average. Online banks, on the other hand, typically pay much more because they don’t have the costs associated with physical branches, giving them the opportunity to pay customers higher yields. Though online banks offer higher savings rates and charge fewer fees than traditional banks, consumers should also consider their individual financial needs, such as the need or desire to bank in person at a branch, when weighing where to open an account.
Benefits and risks of a savings account
Savings accounts, like all financial tools, come with benefits and risks. It's wise to weigh the pros and cons to see if one of these accounts is ideal for your financial situation.
Benefits
- Security: Savings accounts at an FDIC-insured bank are federally insured up to at least $250,000, making them great places to stash cash.
- Liquidity: You can access your savings in your account when needed. Savings accounts only allow for up to six withdrawals or transfers per statement cycle, but you won't have to sell investments in order to get your money out.
- Earnings: The money you keep in a savings account earns interest over time and compounds, offering a return on the principal.
- Higher interest: The best savings accounts usually earn more interest than a checking account – and some even have a higher yield than money market accounts.
- Low-fee options: There are many savings account options that either have a $1 minimum balance or no minimum. With these options, it’s easy to avoid a maintenance fee.
- Access: Many savings accounts allow you to access your savings at ATMs with an ATM card. Just make sure the ATM is in the network to avoid any fees. Also, ATM withdrawals don’t count toward your monthly/statement cycle limit of six.
Risks
- Low interest: Savings accounts do pay interest, but it's often much lower than can be earned with other savings vehicles like certificates of deposit or even some money market accounts. That can lead to a big opportunity cost — you may find higher returns elsewhere.
- Accessibility: Unlike checking accounts, savings accounts have a limit on the number of withdrawals and transfers you can make each month. Withdraw more than six times during a month, and you could get hit with a withdrawal penalty.
- Fees: Some banks charge minimum balance fees. Those maintenance fees can eat up any interest earned and your principal very fast, especially with low interest earnings.
Who should have a savings account?
Most consumers would benefit from having an emergency fund and additional savings. Some banks make it easy by allowing consumers to open multiple savings accounts for different savings goals.
A savings account should be a part of a diverse portfolio that also includes CDs for locking away money for longer terms, as well as the best investments to build your retirement nest egg. As a general rule, savings accounts are for money that you may need in the short term and that you don’t want to expose to any risk that could cause you to lose any principal. CDs are generally better suited for money that can be left untouched for one, three or five years, since CDs typically charge penalties for early withdrawals.
Savings accounts aren’t for everyone, including those who aren’t able to maintain any minimum balance requirement that may result in fees.
When should you open a savings account?
Savings accounts are an ideal way to establish an emergency fund, but the money can be used for any financial goal, such as a downpayment on a house, a vacation or cash for retirement. Rates now at online banks are much lower than they were in early 2020 and 2019, and though there are expectations for rate increases, they might not be significant. Consumers have no control over low interest rates, but it pays to secure a competitive yield even when the difference seems minimal. For instance, $10,000 for a year in a savings account at 0.55 percent APY would earn $54 more than it would at 0.01 percent, assuming money is not withdrawn from the account.
Bankrate's experts have compiled these reasons for opening a savings account:
Should you open a new savings account in 2022?
Savings accounts are a smart way to set money aside, no matter what the yield is. Right now, rates are much lower than they were in early 2020 and 2019 at online banks, and they are expected to remain that way even as savings rates have begun to rise. You can’t control that we’re in a low-rate environment, but you can look for a competitive yield. Even a slight difference in rates can help. For instance, $10,000 for a year in a savings account at 0.55 percent APY would earn $54 more than it would at 0.01 percent. Also, savings yields are usually variable, which means the APY offered today may be higher or lower six months from now.
How much money do you need to open a savings account?
To start, it’s best to set aside three to six months’ worth of living expenses in a savings account. Ideally, that amount should be the minimum stashed away in your emergency fund, to cover such things as job loss, or unexpected health bills or home repairs. After that, you can start saving for more specific goals, such as saving for a down payment on a house, buying a car, going on a vacation or anything else worth saving for.
Consider keeping your emergency savings in a separate savings account to prevent inadvertently spending it on nonemergency purchases. Also, if your emergency savings is earning a competitive APY, there’s little downside to saving more than needed to cover basic expenses. In an emergency, you’ll be glad you have a cushion.
Some banks may limit how much you can deposit into a savings account. There may be limits on your initial deposit, how much you can deposit at one time or how much money you can keep in the account.
Bankrate's experts compiled these articles, customized by age, to help you save:
- Saving in your 20s: Early adulthood is an ideal time to develop good saving habits and set a solid foundation for the future.
- Saving in your 30s: The 30s are an eventful stage of life when many adults experience important life events.
- Saving in your 40s: Approaching middle age is a time to assess how well you’ve saved and whether changes are needed.
- Saving in your 50s: As consumers age it’s important at this stage to begin planning for how to pay medical costs in later years.
Are there fees associated with a savings account?
Savings accounts may charge a maintenance fee if the minimum balance requirement isn’t maintained. Some savings accounts, however, don’t require a minimum balance or only require a nominal amount — and still pay competitive APYs. If the account’s minimum balance requirement is too high, consider finding a bank offering a similar APY with no minimum balance requirement — or a lower one. Finding a savings account with no monthly fee is the easiest way to avoid having surcharges eat into your interest earnings or principal.
Out-of-network ATM fees are another charge to watch out for, as are fees for closing a savings account before a specified period, typically three to six months. Banks may also charge fees for sending wire transfers, or purchasing cashier’s or official bank checks, utilizing funds in a savings account.