Types of Savings Accounts

From Basic Accounts to Savings-Like Alternatives

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A savings account is a great place to keep cash that you don't plan to spend right away. It keeps your money safe and easy to access while paying you a little bit of interest. There are several different types of savings accounts to choose from, plus other options that work in much the same way. Each bank and account type has different features, so it's important to understand your options.

Key Takeaways

  • When choosing a savings account, compare the interest you'll earn and the fees you'll pay.
  • You may earn more interest with an online savings account, though many brick-and-mortar banks offer online features, too.
  • You could choose a student account if you're eligible.
  • Other choices for your savings include money market accounts, interest-bearing checking accounts, and certificates of deposit.

How To Compare Savings Accounts

When comparing different types of savings accounts, look at two major factors: the interest you'll earn and the fees you'll pay.

Earning Interest

All savings accounts pay interest, which helps you grow your funds. However, the average interest rate on typical savings accounts is less than 1%, so growth will be slow. As you compare options, look at the interest rate, which is often quoted as an annual percentage yield (APY), to decide which account is best.

You don't have to choose the account with the highest interest rate, though. Just make sure the rate you get is competitive. Especially with smaller account balances, the interest rate is not as important as other account features, such as liquidity and fees.

Avoiding Fees

Fees are harmful to your savings account's health. With relatively low interest rates, any charges can wipe out your annual earnings or even cause your account balance to decrease over time. Examine your bank's fee statement carefully before depositing your money.

Basic Savings Accounts

In its simplest form, a savings account is just a place to hold money. You deposit into the account, earn interest, and take money out when you need it. You can add to the account as often as you like. There used to be some limits on how often you could withdraw or transfer funds without showing up in person. But the Federal Reserve paused those rules in April 2020 to make things more convenient for account holders.

There's nothing wrong with using a plain-vanilla savings account. If your needs are fairly simple, you can probably open a savings account at a bank you're already working with and be done with it.

Online Savings Accounts

Highlights of online bank accounts include:

  • High interest rates on your deposits
  • Low (or no) monthly fees
  • No minimum balance requirements
  • Leading-edge technology

These types of accounts were initially available through online-only banks. Now, most traditional, brick-and-mortar banks also include features such as online bill payment and remote deposit.

Some traditional banks may act more like an online-only bank outside the area where they have a network of bank branches. This is helpful when you need to withdraw cash but don't have a bank branch nearby. For example, Capital One offers many locations where you can access cash without a fee. Other banks, including PNC, will reimburse you for the fees you're charged when using a different bank's ATM, subject to a monthly limit.

Self-Service

Online savings accounts are best for self-sufficient, tech-savvy consumers. You can't walk into a branch and get help from a teller; you'll do most of your banking online by yourself. However, managing your account is simple, and you can always call customer service for help. You can complete most requests yourself, when and where it's convenient for you.

Linked Account

You usually also need a brick-and-mortar bank account to use an online account. This is your linked account, and that's typically the account you'll use for your initial deposit. Once your online account is up and running, you can make deposits from other sources as well. You can even deposit checks to the account with your mobile phone.

Spending Money

If there's no physical branch, you may wonder how you can access cash quickly when you need it. Most online banks also offer online checking accounts that allow you to write checks, pay bills online, and use a debit card for purchases and cash withdrawals. If you need to move the money to your local bank account, that transfer typically happens within a few business days. Plus, some online banks allow you to order cashier's checks that go out by mail.

Other Types of Savings Accounts

If you need more than a standard (or online) savings account, there are other types of accounts that pay interest while offering additional benefits.

Money Market Accounts

Money market accounts (MMAs) are a lot like savings accounts. The main difference is that you have easier access to your cash. You can usually write checks against the account, and you might even be able to spend those funds with a debit card. MMAs often pay more interest than savings accounts, but you're also typically required to keep more money in them. They are a good option for emergency savings because you still have easy access to your cash while earning interest.

Certificates of Deposit

Certificates of deposit (CDs) are also similar to savings accounts, but they usually pay more interest. The trade-off is that you have to agree to leave your money in the CD for a certain amount of time—for example, six months or a year and a half. It is possible to withdraw funds early, but you'll have to pay a penalty, so CDs make sense only for storing cash that you won't need anytime soon.

Checking Accounts

If you want the easiest access to your cash, you might consider opening a checking account. Traditional checking accounts pay either no interest or an annual percentage yield of 0.01%. However, some banks, including Huntington National Bank, pay a bit of interest—perhaps an APY of 0.15%—especially if you keep both checking and savings accounts with the same bank.

Rewards checking accounts may pay even more, but to collect a certain level of interest on your money, you need to carry out a certain number of transactions in a given month. For instance, Axos Bank pays an APY of 0.40% if you direct deposit at least $1,500 and an additional 0.30% if you use your debit card 10 times. Use your account to make your loan payment and earn 0.15%, plus you could earn 0.20% for a minimum balance in a Managed Portfolios account and 0.20% for a minimum balance in a Self-Directed Trading account, for a total of 1.25% in interest.

Student Savings Accounts

With the general exception of online banks, savings accounts can be expensive if you don't keep a large balance in your account. Banks typically charge monthly maintenance fees and pay little or no interest on small accounts. For students (who spend most of their time studying, not working), that's a problem. Some banks offer student savings accounts that don't charge monthly fees.

Once the account has been open for a certain number of years or the account holder reaches a certain age, a student account will convert to a traditional savings account, and the holder will need to be mindful of fees.

Goal-Oriented Savings Accounts

You can save for anything—or nothing in particular—in a savings account, but sometimes it's helpful to earmark funds for a specific purpose. For example, you might want to save for a new vehicle, your first home, a vacation, or even gifts for loved ones. Some banks offer savings accounts that are specifically designed for those goals.

The main benefit of these accounts is that you might be more likely to reach a savings goal if a specific account is tied to something you value. You generally don't earn more—although some banks and credit unions offer perks to encourage regular saving. For example, CIT Bank pays an APY of as much as 0.65% if you deposit $100 into it every month.

Frequently Asked Questions (FAQs)

How many savings accounts can you have?

There isn't a rule that limits how many savings accounts you can open. If a bank is willing to let you open a savings account, there's nothing stopping you. You may even be able to open multiple savings accounts with the same financial institution.

How do high-yield savings accounts work?

High-yield savings accounts offer higher-than-average interest rates. While there's typically a trade-off between interest rates and safety in the bond market, high-yield savings accounts are just as safe as regular accounts as long as they're FDIC-insured. Instead of extra risk, high-yield savings account holders may have monthly withdrawals limited, higher account minimums, or more fees.

If the Federal Reserve changes the federal funds rate, what happens to savings accounts?

As long as your bank is FDIC-insured, your funds won't be affected by any external events, including any Federal Reserve policy changes. However, your yield may fall when the Fed reduces the federal funds rate. In other words, your money is safe, but you might not earn as much on your deposits. On the other hand, when the Fed raises the fed funds rate, you may eventually see your yield rise, too.

Article Sources

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  2. Board of Governors of the Federal Reserve System. "Savings Deposits Frequently Asked Questions."

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  8. Citi. "Savings, Checking, CDs, and Money Market Accounts: What's the Difference?"

  9. The Huntington National Bank. "Open a Checking Account Online."

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  14. Consumer Financial Protection Bureau. "The Fed Is Raising Interest Rates. What Does That Mean for Borrowers and Savers?"