Saving money on a regular basis has many benefits. Having cash in the bank prepares you for financial emergencies, such as joblessness or major car repairs. And it can help you fulfill your dreams, whether it’s buying a home or starting a business.
Choosing the right savings account is key because not all savings accounts are the same. Here’s a closer look at 10 savings account options to help you determine which one might be the best fit for you.
1. Regular savings account
The most common savings account is a traditional savings account at a bank or credit union. If the bank is a member of the Federal Deposit Insurance Corp. (FDIC) or the credit union is a member of the National Credit Union Administration (NCUA), your savings is insured up to $250,000 per depositor, per FDIC-insured bank, per ownership category.
Basic savings accounts offer easy access to cash. You can usually make up to six withdrawals per statement cycle, not including ATM withdrawals and taking out cash inside a branch. But check the bank’s policy. In 2020, in an effort to provide consumers greater access to their money in the economic fallout from the coronavirus pandemic, the Federal Reserve Board removed a rule called Regulation D, which limits certain withdrawals and transfers to six each statement cycle. While some banks have lifted the rule, others haven’t. Most savings accounts still have withdrawal restrictions.
Interest rates on basic savings accounts are generally low compared with other savings products. But yields have gone up at many banks, and some credit unions, since the Fed started raising rates in March 2022 to fight inflation. Many of the highest-yielding savings account rates are found at online banks. Take time to shop around to find the best account for you.
2. Online savings account
A brick-and-mortar financial institution isn’t the only place to shop for a savings account. Online banks provide an easy, accessible way to manage your money from anywhere in the world on your smartphone or computer.
Moreover, online savings accounts are considered safe at federally-insured banks and credit unions – as long as you stay within the limits and guidelines of the Federal Deposit Insurance Corp. (FDIC) for banks or the National Credit Union Administration (NCUA) for credit unions. What’s more, online savings accounts tend to offer higher yields than those at financial institutions with brick-and-mortar branches.
Like traditional banks, online banks typically restrict withdrawals to six per statement cycle, so learn the terms of your account to avoid possible penalties.
Online savings accounts are a convenient option if you’re comfortable with digital banking.
3. High-yield savings account
High-yield savings accounts are similar to traditional savings accounts with one big difference: The interest rates are higher, allowing you to grow your savings faster without compromising safety and liquidity.
You might still be limited to six withdrawals or electronic transfers per statement cycle, but check with the bank. Some banks have loosened those rules.
At a member-FDIC bank, your money is safe, even if your bank fails, as long as you’re within FDIC limits and guidelines.
4. Student savings account
Another savings account option is one specifically for students. Student savings accounts tend to have features that make banking easier for young people with modest financial means. You can find accounts with no minimum opening deposits and no monthly service fees.
The downside is that options are somewhat limited. Many banks and credit unions offer student checking accounts, but student savings accounts are less common.
If you’re having a hard time finding a savings account specifically for students, don’t get discouraged. You can still find a savings account with a competitive APY and no monthly fees.
Also, student savings accounts might not offer competitive yields.
5. CDs
A certificate of deposit, or CD, is another type of savings account. CDs typically pay a higher yield than traditional savings accounts because you agree to let the bank keep your money locked up for a specific term that could range from three months to five years or longer. The downside is reduced liquidity, or the ability to withdraw funds when you want them without a penalty.
As you compare CDs, you’ll notice that a longer term, such as a five-year CD, can translate into a higher yield. However, the trade-off is you agree to leave your money untouched for five years. Your funds will be safe if they’re FDIC- insured, but should you need to withdraw your money before the CD has matured, you’ll incur an early withdrawal penalty.
Because it ties up your money for a specific length of time, a CD is a good place to save for longer-term goals. It’s not the best place, however, to stash your emergency funds or cash you might need to access in the short term.
6. Money market accounts
Money market accounts offer a safe place to store your savings and take advantage of decent yields. Many of the top money market accounts are offering APYs of 4.2 percent or higher.
Like most bank savings products, your money market account is insured by the FDIC for up to $250,000, per depositor, per insured bank, for each account ownership category. Unlike most savings accounts, money market accounts typically offer access to your funds via a debit card or paper check.
Although some banks may impose limits on monthly withdrawals, money market accounts offer greater flexibility than traditional savings accounts and CDs. However, money market accounts typically pay less than CDs.
Market money accounts also tend to require higher minimum balances than other types of savings accounts, so consider the pros and cons of money market accounts before making a decision.
7. Savings accounts with automatic savings features
Savers who want extra help reaching their goals might consider opting into automatic savings features. Some work by rounding up debit card transactions to the nearest dollar, then transferring the difference into your savings account.
Another option is to set up an automatic deduction from your paycheck and have the money moved into a savings account.
Although these steps may seem small, they can help you build up your savings account if you’re disciplined and stick to it.
8. Cash management account
Cash management accounts (CMA) are a little different from other savings vehicles. They are not available at banks and credit unions. These accounts are offered by non-bank financial institutions such as brokerages and robo-advisor platforms.
Many CMAs place your funds with partner banks, which is good for big depositors because by spreading your money around, your FDIC coverage can be expanded way beyond the $250,000 limit.
CMAs do pay interest, but rates typically are lower than APYs on high-yield savings accounts.
9. Health Savings Account
A health savings account (HSA) is similar to a standard savings account, except it is designed for a singular purpose: to pay medical expenses. You must be enrolled in a high-deductible health plan (HDHP) to open an HSA, and you and/or your employer can contribute to the account.
There are contribution limits to this tax-advantaged account. Individuals can contribute up to $3,850 in 2023; the contribution limit for families is $7,750. Savers who are age 55 and over can contribute an additional $1,000.
HSAs aren’t subject to federal income tax and unspent account funds roll over year after year for future health care expenses. Since an HSA can only be used to pay for health care and you must have an HDHP to qualify, it is not a good savings account for everyone.
10. IRA and Roth IRA
There are some savings vehicles that are better for long-term goals like retirement.
Individual retirement accounts, including Roth IRAs and traditional IRAs, are tax-advantaged options for saving for retirement. You can contribute up to $6,000 to these accounts each year, or $7,000 if you are age 50 or older.
The difference between a Roth IRA and a traditional IRA is in the taxation. A Roth IRA allows you to contribute after-tax dollars, which can be withdrawn tax free after you turn 59½ years old. A traditional IRA allows you to contribute pre-tax dollars, which are taxed as income when you withdraw them after you turn 59½.
Bottom line
The type of savings account you choose should help you achieve your savings goals. As you explore your savings options, think about your needs. Do you value security and liquidity? Or do you want the highest return, even if you have to sacrifice liquidity?
Be honest with yourself about the amount you can afford to put in savings. Start by building an emergency fund that you can access easily. Then, work toward other savings goals with the account that best suits your needs.
— Bankrate’s Matthew Goldberg updated this story. Sarah Sharkey wrote a previous version of this story.
As an expert in personal finance and banking, my extensive knowledge in the field allows me to provide valuable insights into the concepts discussed in the article. My in-depth understanding of various savings options and financial instruments positions me to offer well-informed guidance. Let's delve into the key concepts presented in the article:
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Regular Savings Account:
- Traditional savings account at a bank or credit union.
- FDIC or NCUA membership ensures savings up to $250,000 per depositor.
- Generally low-interest rates, but yields vary among institutions.
- Withdrawal restrictions may apply.
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Online Savings Account:
- Digital banking option with accessibility from anywhere.
- Federally-insured for safety, often offering higher yields than brick-and-mortar banks.
- Similar withdrawal restrictions to traditional accounts.
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High-Yield Savings Account:
- Similar to regular savings but with higher interest rates.
- Limited withdrawals, but some banks may have more flexible rules.
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Student Savings Account:
- Tailored for students with features like no minimum deposits or monthly fees.
- Limited options compared to student checking accounts.
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Certificates of Deposit (CDs):
- Higher yield than regular savings but with a fixed term.
- Longer terms may offer higher yields, but early withdrawal incurs penalties.
- Suitable for longer-term savings goals.
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Money Market Accounts:
- Safe with decent yields; insured by the FDIC.
- More flexibility than traditional savings accounts and CDs.
- Higher minimum balances and potentially lower yields than CDs.
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Savings Accounts with Automatic Savings Features:
- Tools to aid savings goals, such as rounding up transactions or automatic paycheck deductions.
- Incremental contributions can accumulate over time.
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Cash Management Account (CMA):
- Offered by non-bank financial institutions, e.g., brokerages or robo-advisors.
- Funds may be placed with partner banks to expand FDIC coverage.
- Typically lower interest rates compared to high-yield savings accounts.
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Health Savings Account (HSA):
- Designed for medical expenses, requires enrollment in a high-deductible health plan.
- Tax-advantaged account with contribution limits.
- Unused funds roll over for future healthcare expenses.
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Individual Retirement Accounts (IRA) and Roth IRA:
- Long-term savings vehicles for retirement.
- Tax-advantaged options with contribution limits.
- Roth IRA contributions are after-tax, withdrawals tax-free; traditional IRA contributions are pre-tax, taxed upon withdrawal.
In conclusion, the choice of a savings account should align with individual financial goals, considering factors like security, liquidity, and return on investment. Whether prioritizing short-term needs or planning for retirement, understanding the nuances of each savings option is crucial for making informed financial decisions.
