9 different types of savings accounts to consider
Savings accounts are great tools for personal (and business) cash management. The right types of savings accounts provide a safe harbor for cash you don't need right away but may want quick access to in the future. You also generally earn at least a little interest on the money while it's held securely in an FDIC-insured account, which experts say is a much safer spot to hoard dough than in your childhood lunchbox you shoved under the couch.
Different types of savings accounts exist, though, and each offers unique benefits—and sometimes, unique disadvantages. Find out more about nine types of savings accounts below so you can make proactive, educated decisions about where to keep your cash and maybe even teach your buddies how to do the same.
1. High-yield savings accounts
High-yield savings accounts offer a higher-than-average interest rate. That means the money you keep in such an account yields a higher return than money would in a traditional savings account.
That's not to say you'll get rich from these savings accounts. A good interest rate for a high-yield savings account is typically between 1.5% and 3%. How can that be considered high? Well, try comparing it to the average interest rate for regular savings accounts. According to the FDIC, that's only around 0.39%¹.
To understand the difference in a more relatable way, consider a hypothetical situation where someone deposits $500 into a savings account at the beginning of a year. They also put $100 in that account every month through the year.
In a high-yield savings account paying interest of 2.5%, the person would earn $26.19 in interest during the year. In a regular savings account paying 0.21% interest, the earnings would only be $2.20.
One drawback is that many banks that offer high-yield savings accounts require a minimum opening deposit and minimum average deposit. That means you must keep a certain amount, on average, in the account. Sometimes, those thresholds are as high as several thousand dollars and let's face it, not everyone has that kind of extra cash just lying around.
You may be able to get around high minimums by opening a high-yield savings account with an online bank that doesn't have branches. Online banks often save substantial overhead by not operating branches, and they may pass some of that on to account holders via perks like higher yields.
2. Traditional, regular, or basic savings accounts
A regular or traditional savings account is one that doesn't pay a lot of interest. In most cases, you can open one of these accounts with very little cash, and you don't have to keep a minimum balance. It's great for people who don't like being controlled but want more options for controlling their money.
When considering various traditional savings accounts, ask these questions:
What are the fees?
Many banks offer free basic savings accounts, especially for people who have a checking account with the institution.
Can you link your checking account?
Linking your checking account lets you easily transfer money between the two and may also give you a backup funding source if you accidentally overdraw your checking.
3. Kids' savings accounts
Meet the 21st-century version of the old-school pink piggy bank. Many banks offer special savings accounts geared towards children. These accounts are free and don't have the same restrictions on deposit amounts that adult accounts may have. You may be able to open a savings account for your child (under your guardianship) with just a few dollars so they can slowly turn that $5 bill they got from Auntie Anne into startup funds for their first business.
4. Education savings accounts
If you want to help your children or other students in your family save for college, you might look at an educational savings account. Every state has at least one type of 529 savings plan, and you might consider a few other options. These are not normal savings accounts where you can deposit and withdraw money at will. These are tax-deferred accounts that let you save money from your paycheck without paying taxes on it as long as you use that money to cover qualified educational expenses in the future.
5. CD accounts
A CD refers to a Certificate of Deposit, and they can be a way to make a bit more on some of your savings if you know you won't need the money right away.
You deposit a certain amount of money into a CD account and leave it there for a set period of time. When the CD matures—the agreed-upon time period is up—you get the money back plus some interest on it. You can then put the money back into another CD to keep building savings, use it for a purchase, or put it in another savings or investment account.
The downside is that you'll pay a penalty if you have to withdraw the money early. You should always pay close attention to the maturity dates. And don't lock all your savings up into a single CD. It's as close as non-farmers will ever come to putting all their eggs in one basket, and you could be in for a world of regret if you need to access cash ahead of time.
6. Money market accounts
Money market accounts are a type of banking account that offers some of the features of both savings and checking. MMA accounts often have higher yields than regular checking or savings accounts, but they may come with limits. For example, you may have to keep a certain average deposit amount in the account or set up at least one direct deposit a month.
7. Cash management accounts
Cash management accounts are meant to be used alongside investment accounts and tools. You can keep some cash in these accounts as a safe holding place, and a brokerage or financial advisor you work with can move money in and out of it — on your behalf because you're super important—to make investments.
While money is in your cash management account—i.e., while it's waiting to be invested in something else or transferred to you—it may earn interest. In some cases, the interest on these accounts is higher than you could get even on a high-yield savings account.
However, cash management accounts aren't meant to be a savings vehicle. They also aren't typical accounts where you can keep cash stashed for years. Think of these accounts as bustling highways rather than stagnant parking lots.
8. Healthcare savings accounts
Healthcare savings accounts (HSAs) are another type of tax-deferred account. You may be able to set aside some of your income to cover healthcare expenses during the upcoming year. Some healthcare savings accounts do let you roll the savings into the next year, but it's always important to read the fine print.
While healthcare savings accounts are often offered as an employment perk, some banks may offer these types of accounts. This may be something freelancers and other gig workers might want to consider. If you're running food deliveries or selling your graphic design talents on a per-job basis, an HSA can be a wonderfully useful tool.
9. Custodial savings account
Custodial savings accounts are another way you can help a child save money. These are usually set up by parents, grandparents, or other interested parties (such as a guardian) adults. Money is controlled by an adult named as the custodian or trustee of the account, and the child may get access to the funds when they turn 21 or meet another requirement, such as starting college.
Ready to save for your future?
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