4 Different Types of Savings Accounts

What is a Savings Account?

Generally, a savings account isn’t designed to be used on a daily basis. It’s a place for you to invest your money in the short or long term, depending on the type of account. You could use one to save for things like vacations, home renovations, and more.

In most cases, you’ll be able to withdraw money when you need it from a savings account, but depending on the type of account, there may be a limit on the number of transactions you can make each month. This means that you’ll only want to withdraw money when you really need it, otherwise you may have to pay a fee for exceeding your limit.

4 Types of Savings Accounts

While this list doesn’t include every type of account, we’re going to go over some of the more common ones. 

1. Traditional (or Basic) Savings Account

There’s a good chance that when you think of a savings account, what you’re picturing is a traditional savings account that you would open at a credit union or a bank. They’re a place to store money that you’re not likely to use in the short term.

Pros:

• They’re relatively accessible and easy to use.
• You don’t need a huge amount of money to open one.
• It’s easy to withdraw money when you need it.
• You can often link them to your checking account, making it easy to earn interest on any extra cash that you don’t have an immediate need for.

Things to keep in mind:

• You won’t earn as much interest as you would with most other savings accounts.
• In order to maximize the amount of interest you’re earning and/or avoid paying monthly fees, there might be a minimum balance.
• While it’s nice to be able to access this money when you need it, it can make it tempting to spend it.

2. Money Market Account (MMA)

A money market account shares some qualities with both a checking account and a traditional savings account. Here are some key factors to consider.

Pros:

• You’ll have an easy time accessing, even being able to write checks and use a debit card.
• In some cases, a money market account may help you build more interest than you would with traditional savings account.
• Because of the balance they strike between earning a good amount of interest and also allowing you to access your money relatively easily, they can be a good choice for an emergency fund.

Things to keep in mind:

• There are other types of savings accounts that may earn you more interest, but will also be more restrictive.
• To get the best rates possible, you’ll likely need to have a significant amount of money in your account.
• You might be charged monthly fees.

3. High-Yield Savings Account

A high yield savings account works similarly to a basic savings account, but with some important differences.

Pros:

• They offer higher interest earnings than a basics savings account, helping you to grow your savings more quickly.
• Your money won’t be locked for a specific term, making them good accounts to help you build an emergency fund.
• They’re easy to manage and incentivize saving, as the more you deposit, the more money you end up earning. They’re also accessible.

Things to keep in mind:

• There could be a restriction on how many transactions you make and you may be charged for some of these transactions.
• There might be a minimum balance that you’ll need to have at all times to keep the account open.
• While they’re a good and safe way to earn interest, your money may not earn as much as it could if you invested it in other areas.

4. Certificate of Deposits (CDs)

If you might have some extra money lying around that you know you won’t need for some time, you might want to consider putting it into a certificate of deposit (CD).

Pros:

• Interest rates are usually fixed, so you’ll have a good idea of how much interest you’re going to earn over time.
• Interest rates are generally high because you’ll be agreeing to not touch this money for a specific amount of time. This is good for long-term savings goals.
• You typically won’t need to pay monthly fees.

Things to keep in mind:

• Your money won’t be very accessible in a CD as you aren’t supposed to touch it for a pre-determined period of time.
• If you do decide to withdraw money early, you’ll usually have to pay an early withdrawal fee.
• Because you’ll be locking in an interest rate when you open your account, you risk losing out if the market shifts and interest rates go higher.

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