A savings account is like a formal piggy bank. When your money is inside, it’s harder to reach—which means you’ll spend less.
So why ditch the piggy?
Interest. Interest is the amount of money you earn back each year when your money sits in an account.
The average national interest rate is 0.06%, but many saving accounts offer much more than that. Savings accounts pay interest in exchange for limiting your withdrawals.
This guide will help you explain the differences between the major savings account types and help you decide which one works best for you.
These are the most common types of savings accounts and most banks offer them. If you’ve ever opened a savings account, it was probably one of these.
Typically, these earn less interest than specialized savings accounts, but they’re the most straightforward to open. They’re great for anyone getting started. Some banks charge a monthly fee or penalty for low balances, so make sure you read your contract.
Money market accounts make it easy to get your money in and out and sometimes earn even more interest than a standard savings account.
Unlike most other savings accounts, money market accounts also offer debit cards and checks linked to your account.
The only drawbacks to money market savings accounts are the usual minimum balance requirements and the related fees.
A certificate of deposit (CD) account requires you to park your money in an account for an agreed-upon period, known as a term, which can range from three months to five years.
If you take out money before your term is up, you’ll pay steep penalties.
While your money is locked up, it can make you up to five times the average interest compared to standard savings accounts. The longer you leave your money, the better your interest.
If you’re comfortable not touching your money, this can be a great savings option.
A high-interest saving account or a high-yield saving account, is a standard savings account that earns much higher interest.
Most online banks offer this type of account and only require a low minimum balance to start, usually under $100.
High-interest accounts are great if you want the most bang for your buck but don’t have a lot of money to put down.
These are for one type of person—students.
They’re similar to other savings accounts but usually are more flexible and often provide tools to help students manage money more responsibly, like automatic deposits.
A student saving account is perfect for someone in high school or college who wants to start saving young.
Choosing a savings account can seem tricky, but it doesn’t have to be.
Now that you know what each account type does you only need to know how easily you need to access your money and what the interest rates are. That’s it.