A savings account is a secure place to put funds that you have no intention of spending at the time. It is important when planning for both short and long-term goals.
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Savings accounts come in different forms. When choosing, select one that works according to your needs.
This article breaks down the six types of savings account to make it easier for you to make the right decision on which one to choose. You can also choose multiple savings accounts, not just one, depending on your needs.
The 6 types of savings account are;
- High-yield savings account
- Cash management accounts
- Specialty savings account
- Traditional/regular savings account
- Money market accounts
- Certificate of deposits
High-Yield Savings Account
This account is favorable to those who want to increase their savings from a more competitive interest rate with minimal fees.
A high-yield savings account has a higher annual percentage yield than a traditional savings account. This savings account applies mostly to online banks. If you prefer online banking to visit the branch, a high yield savings account is the best platform.
Advantages
- Like the name suggests, this account provides for a high interest rate, thus gives you an opportunity to increase your savings.
- To open an account, you only need a small deposit to open an account.
- The fees charged are minimal compared to traditional banks.
- You are less likely to incur monthly charges.
- Transactions are online, making it flexible to operate any time, any day, anywhere.
Disadvantages
- Everything is online; hence there is no branch banking access or even visiting in case of help.
- You need always to have your phone to make a transaction.
- Depending on the bank, you may have no access to funds via the ATM.
Cash Management Account
It is suitable if you want to access their savings and invest in a retirement account or brokerage.
They aren’t really savings account but temporarily hold money if you intend to make a future investment in a taxable brokerage account or a retirement account.
Robo-advisor platforms and online brokerages may offer this type of savings account to their investors. The interest rates are usually higher than that of a bank. You may get all the basic benefits of a checking account, depending on the brokerage.
Advantages
- They’re an ideal way to gain profit on cash intended to invest.
- Offers the benefits of both a savings and checking account.
- FDIC insures the account if the offer was by a 3rd party bank.
Disadvantages
- High-yield savings accounts have better interest rates.
- You may not have access to branch banking since the brokerage accounts are online.
- The accounts are not always insured by FDIC.
Specialty Savings Account
It is favorable to those saving for a particular goal or even for specific persons or people. Specialty Savings Account aims to help you reach your savings goal. There are, however, no restrictions on accessing your savings.
Advantages
- They help you save money for several specific goals.
- Similar to other savings account, your money earns interest and grows your savings.
- You may incur a low or no monthly maintenance fee depending on the account.
Disadvantages
- Some of the specialty accounts have strict tax rules when it comes to withdrawing.
- They may have limitations on who can open them.
- Interest rates for some of the Specialty Savings Account might be low compared to a traditional savings account.
Traditional or Regular Savings Account
This is suitable if you wish to save, be it short or long-term, but are not necessarily interested in high interest rates.
Traditional savings account basically yield interest but at a very low rate compared to other savings accounts. These types of savings are available at credit unions or banks.
Advantages
- The process to open this type of savings account is quite simple.
- You can open the account online and also perform transactions at ease with your phone.
- They have branches where you can visit for help or even make transactions.
- Low minimum deposit required.
- Your money earns interest hence growing your savings.
Disadvantages
- Low interest rates than other saving up accounts.
- Fees charged for monthly maintenance may nullify the interests earned.
- There are charges for withdrawing.
Money Market Accounts (MMAs)
It is advisable for one who would wish to gain proceeds and at the same time have a variety of options to withdraw their funds. MMAs also yield interest on your savings, higher than that of a regular savings account.
Money market accounts feature the characteristics of both a checking account and a traditional savings account. This type of account is available both in traditional and online banks.
Advantages
- They have better interest rates than the regular savings account.
- You can open this account either at a traditional bank or an online bank.
- You can write cheques from your account.
- You can access money through a debit card or ATM.
Disadvantages
- The minimum deposit to open an account is high.
- Banks have a monthly fee charge.
- There may be a tier on the interest rates; thus, you will require a high balance to get the best rates.
- Going above the monthly withdrawal limits can have you incur extra fees from the bank. If this occurs often, the bank may close your account.
Certificate of Deposit Account
This savings account is suitable if you would like to have the best rates offered and needs no immediate access to their funds.
Opening a Certificate of Deposit account means you enter into an agreement to have your money in the bank for a time frame in which the funds gain interest.
After that time elapses, you can choose to withdraw the money or transfer the savings into a new Certificate of Deposit account. The time range for this account ranges between 30-60 days. You can find this account in both online and traditional banks.
Advantages
- Their interest rates are above-average for either short or long-term savers.
- The account available in online banks may have a lower deposit requirement.
- There is no monthly maintenance fee with the Certificate of Deposit Account.
Disadvantages
- Withdrawing money from this account before it matures attracts an early withdrawal penalty.
- Having your savings in this savings account for a long-time goal makes it harder for you to profit from an increase in interest rate in the future.
- The interest rate of this type of savings account is lower in traditional banks compared to online banks.