What Are the Different Types of Savings Accounts?

Madison Baker
A closeup of someone’s fingertips as they put a coin into a piggy bank

One of the most common pieces of financial advice you may hear is to save money. As you grew up, stashing your allowance in your piggy bank was an adequate way to do so, but now that you’re older, it’s time to open a savings account.

While you may not think you need a savings account, they can make it much easier to, well, save money — after all, that’s exactly what they are supposed to do. When used in conjunction with a checking account, a savings account can help you manage your money with greater confidence and security.

However, there are several different types of savings accounts, and each has unique features and functions. Consider some of the benefits and disadvantages of each type of account to determine which one may best suit your needs.

Table of Contents

Basic Savings Account

Virtually all banks offer, at the very least, a basic savings account. This is a traditional account you can easily set up at a bank or credit union. A basic account will often require you to maintain a minimum balance. If you open it with the same institution as your checking account, you can easily move funds between the two.

The biggest downside to a basic savings account is their minuscule interest rates. According to the FDIC, the average national interest rate for savings accounts in 2020 was only 0.07%. If you’re looking to grow the funds you’re saving, you may want to look at another kind of account.

Joint Savings Account

Similarly, most banks offer a joint account, which is particularly useful if you need to share your finances with someone else. Joint accounts are common between spouses and romantic partners, but are also useful if you take care of an older relative or want to teach your child about financial responsibility.

Joint savings accounts function similarly to a basic or traditional account, but you and the other person both have equal access to it and its funds. This can simplify and streamline financial planning, but because both you and the person who shares the account have equal rights to it, consider whether this is the best move for your finances and relationship. If your partner has a lot of debt or you want financial privacy, you may need your own savings account.

Online Savings Account

At first, online savings accounts were only available through online-only banks. Now that online banking is more common, many brick-and-mortar institutions also offer either an online account or a basic savings account that is accessible online. With a traditional online account, you can do all your banking online, and possibly on the phone if you need additional help. To open one, you may need to link it with a traditional checking account.

Online savings accounts typically offer higher interest rates than a basic account. These higher rates make it easier to grow your savings, but it can be more difficult to withdraw or transfer funds when you need them unless you have a checking account with the same bank.

Money Market Account

Money market accounts (MMA) are similar to traditional savings accounts, but, like an online account, typically have higher interest rates. You can also access your funds more easily, as MMAs often come with a checkbook or debit card so you can make withdrawals; keep in mind that you are still subject to the withdrawal limits set by the Federal Reserve.

Though MMAs tend to require a larger minimum balance than a basic or online savings account, they function in a similar way for many users.

Certificates of Deposit (CDs)

A certificate of deposit shares some characteristics with both savings accounts and bonds. Like a bond, you set aside funds for a certain length of time, and instead of receiving interest payments during the life of the CD, it is paid in a lump sum at its conclusion. The length of time will vary depending on your specific CD, but it but can be as little as six months or as long as several years

Because you cannot touch your funds without being penalized, the interest rates are usually much higher for a CD than a savings account. Additionally, the longer your money is put away, the higher your interest rate will be. CDs are a good option if you know you can go an extended period of time without touching the account.

Interest Checking Account

As stated above, most checking accounts do not accrue any interest, no matter how large the balance is. However, some — appropriately called interest-bearing checking accounts — do pay interest. These accounts combine the benefits of both checking and savings accounts, as you can earn interest while still having unrestricted access to your funds. Though there are some interest-bearing checking accounts with high rates, they typically have lower rates and require a larger minimum balance than a basic savings account.

Specialty Accounts

In addition to the variations on a basic savings account, there are speciality accounts tailored toward a certain function, goal, or beneficiary. Often, these types of accounts are tax privileged and may be exempt from income taxes on any interest they accrue.

Student Savings Accounts 

Students may have trouble paying for the fees associated with a savings account or maintaining the minimum balance. Many brick-and-mortar banks will offer a student savings account, often a 529 college savings account, that waives those fees until you graduate from college and find a job. Keep in mind that this may transition into a regular savings account once you finish school.

Health Savings Accounts 

A health savings account (HSA) is a savings account intended to help you save for future medical expenses. You may contribute to it directly from your paycheck, though there is a maximum amount you can put in each year. There are also strict limitations to what you can and cannot use the funds in an HSA for.

Goal-Oriented Accounts 

The beauty of a basic savings account is that you can build up funds for whatever you like. However, if you need more direction in your saving, have set certain financial goals, or want to save for a specific item (such as a new car or home), some banks allow you to open up a goal-orientated account or sub-account to help you stay on track toward that goal. These accounts usually have the same interest rates and fees as a traditional savings account.

Savings accounts are an essential financial tool that you can greatly benefit from using. They are a secure and low-risk way to save, and even earn, money. By picking the type of savings account best suited to your needs, you are well on your way to financial success and a fruitful future.

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