10 types of savings accounts: Where to save your money
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Saving money on a regular basis has many benefits. Having cash in the bank prepares you for financial emergencies, such as joblessness or major car repairs. And it can help you fulfill your dreams, whether it’s buying a home or starting a business.
Choosing the right savings account is key because not all savings accounts are the same. Here’s a closer look at 10 savings account options to help you determine which one might be the best fit for you.
1. Regular savings account
The most common savings account is a traditional savings account at a bank or credit union. If the bank is a member of the Federal Deposit Insurance Corp. (FDIC) or the credit union is a member of the National Credit Union Administration (NCUA), your savings is insured up to $250,000 per depositor, per FDIC-insured bank, per ownership category..
Basic savings accounts offer easy access to cash. You can usually make up to six withdrawals per statement cycle, not including ATM withdrawals and taking out cash inside a branch. But check the bank’s policy. Federal Regulation D was amended during the coronavirus pandemic to give savers unlimited access to their money. But individual banks were not required to go along with the change, and most savings accounts still have withdrawal restrictions.
Interest rates on basic savings accounts are generally low compared with other savings products. But yields are rising, with the best savings account rates typically found at online banks. If you’re considering this option, take time to shop around.
2. Online savings account
A brick-and-mortar financial institution isn’t the only place to shop for a savings account. Online banks provide an easy, accessible way to manage your money from anywhere in the world on your smartphone or computer.
Moreover, online savings accounts are safe at FDIC-member banks and tend to offer higher yields.
Like traditional banks, online banks typically restrict withdrawals to six per statement cycle, so learn the terms of your account to avoid possible penalties.
If you’re comfortable with digital banking, online savings accounts are a convenient option.
3. High-yield savings account
High-yield savings accounts are similar to traditional savings accounts with one big difference: The interest rates are higher, allowing you to grow your savings faster without compromising safety and liquidity.
You might still be limited to six withdrawals or electronic transfers per statement cycle, but check with the bank. Some banks have loosened those rules.
If the bank is a member of the FDIC, your money is safe, even if your bank fails.
4. Student savings account
Another savings account option is one specifically for students. Student savings accounts tend to have features that make banking easier for young people with modest financial means. You can find accounts with no minimum opening deposits and no monthly service fees.
The downside is that options are somewhat limited. Many banks and credit unions offer student checking accounts, but student savings accounts are less common.
If you’re having a hard time finding a savings account specifically for students, don’t get discouraged. You can still find a savings account with a competitive APY and no monthly fees.
A certificate of deposit, or CD, is another type of savings account. CDs typically pay a higher yield than traditional savings accounts because you agree to let the bank keep your money locked up for a specific term that could range 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.
As you compare CDs, you’ll notice that a longer term, such as a five-year CD, can translate into a higher yield. However, the trade-off is you agree to leave your money untouched for five years. Your funds will be safe if they’re FDIC- insured, but should you need to withdraw your money before the CD has matured, you’ll incur an early withdrawal penalty.
Because it ties up your money for a specific length of time, a CD is a good place to save for longer-term goals. It’s not the best place, however, to stash your emergency funds or cash you might need to access in the short term.
6. Money market accounts
Money market accounts offer a safe place to store your savings and take advantage of decent yields. Many of the top money market accounts are offering APYs of 2 percent or higher.
Like most bank savings products, your money market account is insured by the FDIC for up to $250,000. Unlike most savings accounts, money market accounts typically offer access to your funds via a debit card or paper check.
Although some banks may impose limits on monthly withdrawals, money market accounts offer greater flexibility than traditional savings accounts and CDs. However, money market accounts typically pay less than CDs.
Market money accounts also tend to require higher minimum balances than other types of savings accounts, so consider the pros and cons of money market accounts before making a decision.
7. Savings accounts with automatic savings features
Savers who want extra help reaching their goals might consider opting into automatic savings features. Some work by rounding up debit card transactions to the nearest dollar, then transferring the difference into your savings account.
Another option is to set up an automatic deduction from your paycheck and have the money moved into a savings account.
Although these steps may seem small, they can help you build up your savings account if you’re disciplined and stick to it.
8. Cash management account
Cash management accounts (CMA) are a little different from other savings vehicles. They are not available at banks and credit unions. These accounts are offered by non-bank financial institutions such as brokerages and robo-advisor platforms.
Many CMAs place your funds with partner banks, which is good for big depositors because by spreading your money around, your FDIC coverage can be expanded way beyond the $250,000 limit.
CMAs do pay interest, but rates typically are lower than APYs on high-yield savings accounts.
9. Health Savings Account
A health savings account (HSA) is similar to a standard savings account, except it is designed for a singular purpose: to pay medical expenses. You must be enrolled in a high-deductible health plan (HDHP) to open an HSA, and you and/or your employer can contribute to the account.
There are contribution limits to this tax-advantaged account. Individuals can contribute up to $3,650 in 2022; the contribution limit for families is $7,300. Savers who are age 55 and over can contribute an additional $1,000.
HSAs aren’t subject to federal income tax and unspent account funds roll over year after year for future health care expenses. Since an HSA can only be used to pay for health care and you must have an HDHP to qualify, it is not a good savings account for everyone.
10. IRA and Roth IRA
There are some savings vehicles that are better for long-term goals like retirement.
Individual retirement accounts, including Roth IRAs and traditional IRAs, are tax-advantaged options for saving for retirement. You can contribute up to $6,000 to these accounts each year, or $7,000 if you are age 50 or older.
The difference between a Roth IRA and a traditional IRA is in the taxation. A Roth IRA allows you to contribute after-tax dollars, which can be withdrawn tax free after you turn 59½ years old. A traditional IRA allows you to contribute pre-tax dollars, which are taxed as income when you withdraw them after you turn 59½.
The type of savings account you choose should help you achieve your savings goals. As you explore your savings options, think about your needs. Do you value security and liquidity? Or do you want the highest return, even if you have to sacrifice liquidity?
Be honest with yourself about the amount you can afford to put in savings. Start by building an emergency fund that you can access easily. Then, work toward other savings goals with the account that best suits your needs.
— Sarah Sharkey wrote a previous version of this story.