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When it comes to stashing saved money, most people turn to a traditional savings account. While a savings account can be a great option for storing money in a safe and accessible place, it’s not the only option. Several alternatives to savings accounts exist, and one of them may better suit your financial needs.
Savings Account Alternatives
Some of the most popular alternatives to savings accounts include checking accounts, money market accounts (MMAs), certificates of deposit (CDs) and investment accounts.
Checking vs. Savings Account
Checking accounts and savings accounts are two of the most common types of bank accounts. While both offer a safe place to store your money, they serve different purposes.
A checking account is a transactional account designed for everyday use. These accounts let you deposit and withdraw money frequently—via ATMs, ACH transactions or bank tellers—and make payments with a debit card or check. Checking accounts typically don’t pay much interest, if any, but you get unlimited access to your money.
Savings accounts, on the other hand, are designed for short and medium-term savings goals. These accounts typically pays interest, so you can earn a little extra on money you’re not using for everyday expenses. However, you may pay a penalty if you make more than six withdrawals in a month.
The verdict: If you need to access your money frequently, a checking account may be a good savings account alternative. However, if you’re looking for the best place to save money for an emergency fund, vacation fund or other financial goal, a savings account may be the better choice.
| Checking Account | Savings Account |
|---|---|
| Used for daily expenses | Used for short and medium-term savings |
| Low or no interest rates | Higher interest rates |
| No withdrawal limits | Often limited to six monthly withdrawals |
| May have fees for overdrafts or monthly maintenance | May have fees for excessive withdrawals or monthly maintenance |
| Typically linked to a debit card | Usually no debit card or ATM access |
Money Market Account vs. Savings Account
A money market account (MMA) is another savings account alternative that typically restricts withdrawals to six per month. While MMAs sometimes have higher interest rates than savings accounts, they may also require a higher minimum balance to open and maintain.
Despite the higher minimum balance, MMAs often come with additional benefits such as a debit card or check-writing privileges, which makes accessing your funds easier. They may also have tiered interest rates, meaning customers with larger balances earn higher rates.
The verdict: If you want your savings account to come with checks or a debit card, an MMA might be a good option for you. However, you may need a larger minimum deposit to open an account or avoid the monthly fee.
| Money Market Account | Savings Account |
|---|---|
| Higher interest rates | Lower interest rates |
| May require higher minimum balances | Lower minimum balance requirements |
| Often includes checks and a debit card | Usually no checks or debit card |
| May have fees for excessive withdrawals or monthly maintenance | May have fees for excessive withdrawals or monthly maintenance |
CDs vs. High-Yield Savings
Certificates of deposit (CDs) and high-yield savings accounts are both options for earning higher interest rates than you’re likely to find with traditional savings accounts.
CDs typically offer higher interest rates than savings accounts, but CDs require you to leave your money in the account for a specified period of time, known as the term. If you withdraw your money before the end of the term, you may incur a penalty fee.
CDs also usually have higher opening deposit requirements than savings accounts, but rates on CDs are fixed, so they’re guaranteed through the CD term. With savings accounts, rates are variable and can change at any time.
High-yield savings accounts are similar to regular savings accounts, but they offer higher interest rates and often have no monthly fee. Minimum balance requirements for high-yield savings accounts are generally low—many accounts have no requirement at all.
The verdict: If you don’t need immediate access to your money and are looking to earn higher interest rates, a CD may be a good option for you. However, if you want to be able to withdraw your money at any time, a high-yield savings account may be the better choice.
| Certificate of Deposit (CD) | Savings Account |
|---|---|
| May have higher interest rates | May have lower interest rates |
| Requires a fixed-term commitment | No fixed-term commitment |
| Withdrawing money before CD matures can incur a penalty fee | Withdrawing money more than six times per month can incur a fee |
| Usually requires a minimum deposit | May have no minimum deposit requirement |
| Fixed interest rate for the CD term | Variable interest rate that changes over time |
Savings Account vs. Investing
Investing your money is a great way to build long-term wealth because it can potentially yield higher returns than a savings account. Even the best savings rates may fall shy of the inflation rate, so many people prefer investing their long-term savings. However, doing so comes with higher risk.
Investing is a good option if you have long-term savings goals and are willing to take on some risk. Stocks, bonds and mutual funds are common types of investments. However, investments can lose value, whereas money in a savings account is typically insured up to $250,000. It’s essential to research and understand the risks involved with investing before spending your savings on stocks.
The verdict: If you’re saving for a short-term goal or need immediate access to your money, a savings account is a better choice. However, if you’re saving for a long-term goal, such as retirement—and you’re okay with some level of risk—investing can be a smart way to build wealth and potentially earn higher returns.
| Investing | Savings Account |
|---|---|
| Potential for higher returns | Lower interest rates |
| Best for long-term goals | Best for short-term goals |
| Harder to withdraw funds | Easy to withdraw funds |
| Investment risks involved | Inflation is a factor |
| No FDIC insurance | FDIC-insured up to $250,000 |
| May have tax advantages | Usually no tax advantages |
| May require a minimum investment | May have no minimum deposit requirement |
Bottom Line
The best alternative to a savings account depends on your financial goals and needs. Take the time to evaluate each option and consider what matters most to you, whether it be accessibility, interest rates or long-term growth potential. Doing so can help you select the best savings account alternative for you.
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