Types of Savings Accounts

Knowing which types of savings accounts are out there to choose from will help you reach your savings goals the best and fastest way possible.

Savings accounts allow you to grow your savings, earning interest rate on the account balance, and usually come without any fees.

Some savings accounts have minimum balance requirements to earn more APY or need an opening deposit to get started.

Since earning interest is a big part of why you should open a savings account, always check different financial institutions’ rates before choosing the best account for you.

6 Types of Savings Accounts

Ready to start saving? Read about the main types of savings accounts below:

1. Traditional Savings Accounts
2. Money Market Accounts
3. Certificates of Deposit (CDs)
4. High-Yield Savings Accounts
5. Cash-Management Accounts
6. Specialty Savings Accounts

1. Traditional Savings Accounts

Traditional savings accounts are basic savings accounts that you can open at financial institutions like banks or credit unions.

They could be the first option you think of to save money long term or short term.

There are many options to open traditional savings accounts online or at brick and mortar banks.

Nowadays, you usually won’t have to choose because most financial institutions have a mix of both and even a mobile app for convenience.

Always make sure that your deposits are insured before opening a savings account. If the bank fails, you won’t lose everything.

If you choose a bank, your deposits should be insured by the Federal Deposit Insurance Corporation. FDIC-insured institutions protect your money for amounts up to $250,000 per depositor and account ownership category.

Credit unions are typically insured by the National Credit Union Administration (NCUA), which operates very similarly to the FDIC insurance, but for credit unions.

You’ll usually earn some interest on your money deposited in traditional savings accounts. Still, the APY is not as high as it could be with other financial products or other savings options we’ll explore later in this article.

The annual percentage yield on this type of account can go from 0.01% to 2%. It’s always best to check with the individual financial institutions since it can significantly vary.

There used to be a six withdrawal limit per month – but that’s gone now. Institutions now allow you to withdraw more than six times (but for a fee or a penalty).

The fee can change, as every financial institution can choose for itself.

Best For:

• You want to save money in a secure account
• If you don’t mind earning a modest interest rate

2. Money Market Accounts

Money market accounts are another trendy FDIC-insured savings account option.

They can also be called MMSAs, which means Money Market Savings Accounts but don’t confuse them with money market funds.

The latter is a different financial product, and more precisely, a type of investment account.

In short, they are like a mix of traditional savings accounts and checking accounts. They belong to the savings accounts category but offer some extra perks that could be interesting from an account holder’s perspective.

These accounts usually earn higher APY than regular savings accounts, making it a little easier to access your funds. You might have a debit card to use at ATMs, which isn’t usually included with a savings account, and you could also have check-writing privileges.

These extra benefits come with additional requirements, as it often happens: usually, you’ll have to keep a minimum balance of $1,000 in the account or pay some monthly fees.

Just like traditional accounts, you can open money market accounts both at a local branch or online.

The same limit of 6 withdrawals that we talked about for traditional savings accounts applies here too. They are generally under the same regulations.

Be careful about exceeding the six withdrawals limit because fees can add up. If you do it too many times, the financial institution can also block or close your account.

If you need to withdraw money frequently, my suggestion is to open a checking account, which is more operational.

Best For:

• You want to have more options to access your money
• You want to earn a higher APY
• Can leave a minimum balance of at least $ 1000 in the account at all times.

3. Certificates of Deposit (CDs)

Certificates of deposit, or CD accounts, are an excellent option for long-term savings.

You will usually earn more interest since you are leaving your funds in the account for longer. However, that’s not always the case, so read carefully the APY rate the account will earn.

Certificates of deposit accounts require you to leave your money in the account for a specific amount of time, during which the account will earn interest and “mature.”

When the account matures, you can choose to leave the money on the account for more time or withdraw your funds.

It’s not best practice to withdraw money from the account before the CD has matured because you will incur steep fees.

There is a way to avoid early withdrawal penalties and still get some money before the maturity date. You can do this by creating a CD ladder of multiple CDs, each with a different maturity date.

That way, you’ll still earn higher interest rates than with a regular savings account, and have money available to withdraw whenever you need it, fee-free.

CDs are for long-term savings, so plan to leave your money in the account for the established time if you can, anyway.

The time you agree to leave your funds in the account is called a CD term. A term can usually go from 6 months to 5 years. The longer terms you choose, the higher the interest earnings will be on the account.

Large deposits can benefit from special interest rates in so-called Jumbo CD accounts, and online-only banks usually offer the best rates.

Best For:

• You plan on leaving your funds in the account for a set period of time in exchange for higher interest rates.
• You’re not worried about liquidity and are focused on long-term savings

4. High-Yield Savings Accounts

High-Yield savings accounts allow you to earn higher APY on your savings account without paying more fees to do so.

Most high-yield savings accounts are offered by online financial institutions (like online banks or online credit unions).

These financial institutions, not having to manage the costs of a brick-and-mortar establishment, can offer both low fees and an outstanding APY.

These accounts usually have no monthly maintenance fees, initial deposit to open a new account, or minimum balances required. Still, you’ll have to check because each one has its own benefits and requirements.

The only inconvenience with an online savings account is that you can’t talk to a representative in-person to solve a problem. That said, you can still get help – just online or by phone.

Most online-only banks and credit unions have excellent options in place to assist you remotely. Still, the lack of in-person support is something worth bearing in mind when choosing a financial institution.

You could also check the bank’s mobile app and web portal rankings and reviews to get a better idea of the quality of their customer service.

Banks are usually member FDIC and credit unions NCUA insured, just like traditional savings accounts, so you shouldn’t worry about that.

Best For:

• You don’t mind not having access to a local brick-and-mortar branch location
• You would like a fee-free savings account which, on top of that, offers high-interest rates.

5. Cash-Management Accounts

Cash management accounts, or CMAs in short, aren’t savings accounts, and to be more precise, they aren’t even bank accounts at all.

They are included in this article because they offer services similar to savings and checking accounts. They’re an excellent way to save money.

Cash-management accounts are accounts where you can temporarily keep some cash available to later invest it in a retirement account or a brokerage account.

You’ll find them at many financial institutions and lenders – from investment firms to Robo-advisors, which often partner with banks to keep your deposits in an FDIC-insured account. Not all CMAs are FDIC insured, so this is something to keep in mind.

CMAs offer higher interest rates compared to high-yield savings accounts. They also come with extra benefits like bill pay, free money transfers, and check-writing, which are more typical to find attached to checking accounts.

The perks included depending on the brokerage or investment firm of your choice.

Since they aren’t bank accounts, some CMAs can make it hard to add funds or withdraw money. Try to choose an account that allows easy access to your money. This problem is usually solved using e-transfers between CMAs and your bank account.

If you already have an investment account with the same provider as your CMA, they can connect them for easy fund transfers.

Best For:

• If you plan to invest in a retirement account or brokerage account and need a place to store your funds.

6. Specialty Savings Accounts

Specialty savings accounts come in many different shapes and sizes. This term isn’t exclusively used to refer to one specific account but a collection of accounts.

These accounts can be simple savings accounts or even investment accounts.

They all have a common purpose: helping you save for a specific financial goal of your choice.

They can also be targeted at specific groups of people or used as emergency funds.

Most Well-Known Specialty Savings Accounts:

• Individual Retirement Accounts (Traditional IRAs and Roth IRAs)
• Health Savings Accounts (HSAs)
• Kids’ Savings Accounts
• Custodial Savings Accounts
• Student Savings Accounts
• 529 College Savings Accounts
• Home Down Payment Savings Accounts
• Christmas Club Savings Accounts

You can tell pretty well what each account’s purpose is by its name.

You’ll notice that you can open some to save for specific financial goals, such as HSAs for health expenses. Others you can open to save for a specific person (like custodial accounts, for example).

Best For:

• If you have a particular objective to save for
• Would like to take advantage of tax-free benefits at the same time

Learn More:

• Best Alternatives to Savings Accounts

Which Type of Savings Account Is Best For You?

At this point, we’ve explored the primary savings account types available, but which one should you choose to best suit your personal finance goals and savings plans?

Here are the four most important things to consider before making your final choice on the best savings account.

1. Online Savings Account vs. Traditional Savings Accounts

Are you comfortable using your account online-only? Or would you prefer to have the possibility to talk to a real person if you need to?

Online-only banks are very convenient, mainly because of no monthly service fees and at the same time offer higher interest rates compared to traditional banks.

If you don’t see yourself managing your funds online, though, you might be better off with a brick-and-mortar traditional bank.

2. Fees

Fees are definitely something to avoid or minimize as much as you can. Some savings accounts require a minimum balance, minimum deposit, or ask you to pay fees to earn interest.

Others don’t require fees but give you an option to pay some to earn a higher APY.

There are many possibilities. Always make sure you are choosing one that gives you the highest return on investment (ROI).

3. Interest Rates (APY)

Earning interest is maybe the primary reason why you should open a savings account.

Since annual percentage yields earned on different types of savings accounts are highly varied, don’t forget to consider them before deciding on one, both long-term and short-term.

4. Range of Services Offered

Would you be happy with a simple savings account which you can use to earn some interest on your money saved?

Or are you looking for a more comprehensive account that includes extra perks such as bill pay, money transfers, and check-writing?

That’s something to think about early on. Remember, though, that if you want an account for your day-to-day spending, you might be better off opening a separate checking account.

Savings Accounts vs. Checking Accounts

Checking accounts are usually for performing everyday transactions. They come with debit cards, credit cards, and ATM cards.

Checking accounts offer unlimited account access. They are for paying your bills, writing checks, withdrawing your money as often as you want, and spending money in general.

Most checking accounts don’t earn any interest, even though some interest-bearing checking accounts are now available at some financial institutions.

On the other hand, savings accounts earn APY but don’t offer many other benefits that regular checking accounts include.

In addition, savings accounts sometimes make it hard for you to access your funds, granting less fund liquidity.

Keep in mind that they’re for saving and growing your funds, not spending money.

They have a routing number to let you transfer funds electronically but don’t come with bill pay, check-writing privileges, or a card.

There are exceptions,  money market accounts, among others, offer some extra perks typical of checking accounts while still being a type of savings account.

Savings accounts also have a limit per month of withdrawals you can make. Usually, this limit is set at six withdrawals per month, after which there will be penalties to face.

After all, their job is to encourage you to keep the funds in the account and not take them out.