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There are manifold savings account types available, but figuring out the best is a tough call. The money in your bank account prepares you for financial emergencies, so it’s good to think of investing your money in a savings account. So, why don’t you start looking for savings account types that could help you make an alley of emergency funds?
This blog will provide all the insights about savings account types.
So, let’s start with different savings account options!
6 Different Savings Account Types in the USA
Differentiating between distinct savings account types means looking at their features, interest rates, and the pros and cons of a particular savings account.
1. Regular or Traditional Savings Account
A Regular Savings Account is ideal for those who save money for the long or short term and are not very concerned about receiving a reasonable interest rate, expressed as the Annual Percentage Yield (APY).
Traditional savings accounts are found at credit unions or traditional banks. These savings account types permit you to earn interest, although they usually pay lower rates than other savings products. Several credit unions and banks allow you to open a regular savings account with a minimum deposit.
Also, traditional savings accounts allow you to make up to half-yearly withdrawals (excluding in-person or ATM withdrawals at a branch) before charging a penalty.
Pros
- You can visit a branch if you need any assistance or want to deposit cash.
- These accounts are usually easy to open at a branch and provide online facilities.
- You can earn interest on the savings to increase your money.
Cons
- Additional charges may apply for excess if the withdrawal exceeds.
- Monthly account maintenance fees may cancel out interest earnings.
- Low interest rates than other savings options.
2. Money Market Accounts
Money market accounts are ideal for those looking to earn interest on savings while having several types to manage their money.
(MMAs combine the features of a regular savings account and a checking account. You can find these accounts at credit unions, online banks, and brick-and-mortar banks.
Money market savings account types permit you to earn savings interest. Interest rates are better than regular savings accounts, and some provide rates equivalent to high-yield savings accounts. You can also jot checks from your access funds or account with a debit card or an ATM.
Banks can charge a fee if your withdrawals are more than six per month, similar to a high-yield or regular savings account. If you go beyond the monthly limits, you need to pay a fee, or it may result in the closing of your account if the frequency is high.
Pros
- You can open MMAs at online banks or traditional banks.
- Also, it provides better interest rates in comparison to other types of savings accounts.
- Furthermore, you can jot checks from your account or operate your money with the help of an ATM or debit card.
Cons
- You may need a minimum higher deposit to open an MMA.
- Banks may ask you for a monthly fee for MMAs.
- You will require a higher balance to get the best interest rates.
3. Cash Management Account
The cash management savings account type is ideal for those who want money to invest in their retirement or brokerage accounts.
These accounts are distinct from other savings account types as they are not mainly designed for saving. These accounts allow you to hold cash you plan to invest in a taxable retirement or brokerage account. There are 6 best cash management accounts available in the USA.
Robo-advisor and online brokerage platforms may provide cash management accounts to investors.
The amount held in the account can earn a higher interest rate than what you would get from a bank.
You might get all the essential features you would expect with a checking account, depending on the brokerage.
Pros
- Cash management accounts can offer the best of both worlds (savings and checking accounts).
- It is the most convenient way to earn interest on money you want to invest.
- Accounts might provide higher-than-normal FDIC limits by collaborating with various other banks.
Cons
- Cash management accounts are not necessarily covered by FDIC insurance.
- Moreover, High-yield savings accounts could provide a better rate of interest on your money.
- Also, you might not have access to the branch banking as they are linked to online brokerage accounts.
4. High-Yield Savings Account
High-yield savings accounts are ideal for those looking to earn a competitive savings rate while reducing fees.
You can find high-yield savings accounts at online credit unions, neobanks, and online banks. These savings accounts provide higher APY than regular savings accounts. People usually use these savings accounts to accelerate the growth of their money.
Online banks usually provide distinct types of high-yield savings accounts to attract savers who want to earn a better rate of interest than what you can find at credit unions and brick-and-mortar banks. This account type might allure you if you are comfortable managing your accounts via mobile banking or website rather than a branch visit.
Unlike traditional savings accounts, high-yield savings accounts are NCUA or FDIC-insured. To provide better interest rates, online banks are restricted to charging fewer or lower fees, which include excess withdrawal fees or monthly maintenance.
Pros
- There are fewer minimum deposit requirements for opening an account.
- No or less monthly fee at an online bank.
- You could earn a higher rate of interest than traditional savings accounts.
Cons
- Transferring money between other bank accounts and online savings accounts can take up to some days to process.
- Depending on the bank, you may or may not have money access via ATM
- No access to branch banking means you can not deposit cash directly into your account.
5. Specialty Savings Account
Specialty savings accounts are ideal for those looking for accounts tailored to specific saving goals.
These accounts are designed specifically to help you reach certain saving goals rather than being savvy with money you haven’t planned to splurge. In some cases, they can be intended for a certain type of person rather than a savings goal.
Let’s say there are various savings account types for minors, which include:
- Student savings accounts
- Kids savings accounts
- Custodial savings accounts
Pros
- You can earn interest to help you increase your money like other savings accounts.
- Also, no or low monthly maintenance fee.
- Additionally, they can benefit from saving money for various financial goals.
Cons
- The rate of interest you earn for student accounts, Christmas Club accounts, or Child savings accounts might be lower than that of regular savings or high-yield accounts.
- Some specialty accounts, like HSAs, IRAs, and 529s, have rigid withdrawal rules.
- Specialty accounts might have opening (who can open them) limitations.
6. CD Account
CD Accounts are ideal for those looking to earn competitive rates and would not need to access their savings account.
Certificates of deposits are time deposits, which means you assent to leave the amount in your account for a specific time. Your money earns enormous interest at that time, and when the deposit matures, you can withdraw it. This makes CDs different from other savings account types.
You can easily find CDs online and at traditional banks. Online banks provide better interest rates than traditional and online banks.
CDs are suitable for the amount you don’t want immediately since banks can charge an early withdrawal penalty if you withdraw the amount before the maturity date.
Pros
- No monthly maintenance fees
- Provide lower deposit requirements.
- CDs can provide above-average interest rates for those pursuing short or long-term goals.
Cons
- Traditional bank CDs provide lower interest rates as compared to online banks
- Putting your savings into a long-term CD makes capitalizing on future interest rates challenging.
How to Maximize Your Savings?
It’s essential to have a savings account, irrespective of your age. But growing that account or savings during financial crises can worsen your situation. Look no further, as there are several savings account types and ways to make your savings grow like your child. Here are a few of them:
- Plan your budget with the help of the best budgeting apps like Goodbudget & YNAB, and Set a spending limit for gifts.
- ‘Start small, think big’ and make short-term saving goals. Acorns & Qapital will automate your financial plan with a set-and-forget money tool.
- Start saving for your retirement as early as possible.
- Take complete benefit of employer matches to your retirement plan. Employers will match a specific amount of savings in a retirement plan that includes a 401(k) savings plan.
- Reduce your credit card debt by just $1000. This reduction will save approximately $150-200 a year, and much more if you are paying a 20 to 30% percent rate.
- Check your credit score with FICO once a year. Use your yearly free credit report from the three credit bureaus (Equifax, TransUnion, and Experian) to look for various opportunities to increase your score.
- Keep an eye on your home energy usage. Ask your local gas or electric auditor for a low-cost or free home energy audit. The audit will uncover cheap ways to lower the cost of home cooling and heating by hundreds of dollars annually.
- Refinance your mortgage to a lesser interest rate.
Hope this guide has helped you understand different savings account types.
Don’t forget to check out this blog, if you are just getting started in the investment world: Key Investment Terminology Explained
The Bottom Line
Remember that you do not have to choose one account when choosing an ideal savings account type. You may choose to open different CD accounts, savings accounts, money market accounts, regular accounts, specialty accounts, or high-yield accounts, depending on what you want to achieve, considering your financial goals. Thus, pick the one that suits your financial needs and becomes a life cover for your family.
