10 types of savings accounts: Where to save your money

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The decision to build your savings nest egg is a big step toward a better financial future.

The savings you set aside could help you reach any number of life goals, including buying your first home or building a financial runway to start your dream business. But not all saving accounts are the same. Picking the right one is key to optimizing and achieving your goals, while also recognizing your unique preferences for safety, returns and liquidity.

Here’s a closer look at 10 saving account options to help you determine which one is best suited to your wealth-building goals.

1. Regular savings account

The most common place to save money is in a regular savings account that you can open at nearly every bank. With a basic savings account, you can set aside money for all types of savings goals. These accounts are federally insured up to $250,000 and will allow you to earn some amount of interest on your funds.

Basic savings accounts offer the promise of liquidity (i.e., easy access to cash) to account holders. You’ll have peace of mind knowing that you can make up to six withdrawals per statement cycle to pull out funds for anything that you need.

The interest rates associated with basic savings accounts are generally low compared to other savings vehicles. However, the account offers a relatively safe place to park your money for easy access in the future. It could be the perfect place to store your emergency fund or any savings for short-term goals.

If you’re considering this option, then take the time to shop around your local banks and credit unions. It is possible that you’ll be able to find a basic savings account that will meet your needs with an attractive interest rate.

2. Online savings account

A brick-and-mortar financial institution isn’t the only place that you can shop for a savings account. Online savings accounts offer an accessible way to manage your savings from your smartphone or computer anywhere in the world.

Moreover, online savings accounts are safe and some offer comparable, if not better, yields than brick-and-mortar banks, plus you’ll have the same promise of liquidity that you would get from a traditional savings account.

Like traditional savings accounts, some online accounts restrict withdrawals to six during each statement cycle, so be sure to understand the terms of your account to avoid possible penalties.

If you’re comfortable managing your money online, online savings accounts are a convenient option. You’ll have liquidity and safety without the necessity of banking in person.

3. High-yield savings account

High-yield savings accounts are similar to traditional savings accounts with one big difference: the interest rate is typically higher on a high-yield account, allowing you to grow your funds without forgoing safety and liquidity.

With a high-yield savings account, you may still be limited to up to six withdrawals or electronic transfers per statement cycle, but some banks have loosened those rules. Plus, if the account is FDIC insured, you’ll know your money is safe even if the financial institution runs into trouble.

4. Student savings account

If you’re in school, another savings account option is one geared specifically to students. The benefit of opening a student savings account is you’ll usually enjoy lower monthly balance requirements and additional perks that make your financial life less stressful.

When shopping for a student savings account, you may find that your options are somewhat limited. Many banks and credit unions offer student checking accounts, but student savings accounts are less common.

If you’re struggling to find a savings account specifically geared to students, don’t worry, chance are you can still find a savings account to fill your needs. Some savings accounts allow you to build your savings without any monthly fees while still offering a relatively high APY.

5. CDs

A certificate of deposit, or CD, is another way to build your savings. CDs typically pay a higher yield than traditional savings accounts in exchange for keeping your money for a set term — from three months to five years (or longer). The downside is reduced liquidity, or the ability to withdraw funds when you want them without a penalty, which makes regular savings accounts so attractive.

As you compare CDs, you’ll notice that a longer term, such as a 5-year CD, can translate into a higher yield. However, the trade-off is you agree to leave your money untouched for the duration of the term. Your funds will be safe if they’re FDIC insured, but should you find you need to withdraw your money before the CD has matured, you’ll likely incur a fee.

Based on the lack of liquidity, a CD is a good place to save for longer-term goals. However, it’s not the best place to store your emergency fund or any money that you might need to access in the short-term.

6. Money market accounts

Money market accounts offer a safe place to store your savings while taking advantage of relatively high yields. Many of the top money market accounts are offering APYs of about 0.6 percent.

Like many savings products, the funds in your account can be insured by the FDIC for up to $250,000. Unlike most savings products, money market funds typically offer access to via a debit card or paper check.

Although some banks may still impose limits on the number of withdrawals made in a given cycle, money market accounts offer greater flexibility than traditional savings accounts or CDs. However, money market accounts typically pay less than CDs.

Market money accounts also require higher minimum balances than other types of savings accounts, so be sure to consider the pros and cons of money market accounts before making a decision.

7. Savings accounts with automatic savings features

Consumers who need a little more help in reaching their savings goals may want to opt into automatic savings features offered by some banks. They work by rounding up transactions on debit card transactions to the nearest dollar and transferring the difference directly into your savings account.

Another option is to set up a transfer to automatically move some of your pay into a savings account from your checking account with each paycheck.

Although these actions may seem small, they can add up quickly over time if used consistently, helping you to build a healthy savings account balance.

8. Cash Management Account

Cash management accounts are a little different than other savings vehicles. Typically not offered by banks, these accounts instead are available through non-bank financial service providers. Online brokerages and robo-advisor platforms typically offer CMAs.

Money put into CMA is placed by the provider into an account at a partner bank, which provides FDIC coverage, ensuring your savings is safe. Cash management accounts do pay some interest, though they are designed to hold money that you are planning to eventually place in a brokerage or retirement account.

9. Health Savings Account

Health savings accounts are similar to a standard savings account, except they are designed for a singular purpose: to pay medical expenses. They require you to be enrolled in a high-deductible health plan to open one, and you and/or your employer can contribute to the fund. Up to $3,600 for individuals and $7,200 for families can be put into these accounts each year, and an additional $1,000 a year can be added by those 55 and over. In 2022, the cap will rise to $3,650 for individuals and $7,300 for families.

Health savings accounts aren’t subject to federal income tax and any unspent money will roll over at the end of the year for future health expenses that you may incur. However, an HSA can only be used for medical expenses, so it isn’t a good vehicle for goals other than paying for health-care costs.

10. IRA and Roth IRA

In addition to these short-term savings options, there are other vehicles that are better for long-term goals like retirement.

IRA accounts, including Roth IRAs and traditional IRAs, are good options for those planning for retirement. They typically provide a 7% and 10% average annual return, and you can contribute up to $6,000 to these accounts each year, or $7,000 if you are 50 or older.

The difference between a Roth IRA and a traditional IRA is that a Roth IRA allows you to contribute after-tax dollars, which you can be withdrawn tax free after you turn 59½. A traditional IRA allows you to contribute pre-tax dollars, which are taxed as income when you withdraw them after you turn 59½.

Bottom line

The type of savings account you choose should allow you to better propel yourself toward your savings goals successfully. As you explore your savings options, take the time to think through your needs. Do you value security and liquidity? Or are you looking to secure the highest return, regardless of your access to the funds?

Be honest with yourself about the amount you can save given your current financial situation. Start by building an emergency fund that you can easily access and then work toward other savings goals with the account that best suits your needs.

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Written by
Sarah Sharkey
Contributing writer
Sarah Sharkey is a contributing writer for Bankrate. Sarah writes about a range of subjects, including banking, savings tips, homebuying, homeownership and personal finance.
Edited by
Wealth editor