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What Are the Different Types of Savings Accounts

Milana Budisavljevic, PBO Manager, First Republic Bank
October 26, 2021

Savings accounts are ideal for those looking to save and securely store their money. Each type of savings account offers unique benefits.

Learning about the pros and cons of each can help you select the best account for your financial goals. You'll want to consider the different types of savings accounts before choosing one.

What’s a savings account?

A savings account is offered at banks and credit unions for people who are interested in long-term saving. Savings accounts differ from checking accounts, which are designed for more frequent transactions. Savings accounts usually earn interest, the amount of which can vary by financial institution and account type. Funds in savings accounts are also insured (up to $250,000 per depositor, per account) by the Federal Deposit Insurance Corporation (FDIC).

Another key characteristic of saving accounts is that funds can be withdrawn and, in most cases, transferred to other accounts. However, account holders may have a limit on how many times they can withdraw or transfer money each month depending on their financial institution.

When deciding which type of savings account is best for your financial needs and goals, pay attention to the various features, benefits and drawbacks of each type, including regular savings accounts (which includes passbook savings accounts), statement savings accounts, and money market accounts) and timed deposit accounts (certificates of deposit or CDs).

Regular savings account

A regular savings account is not only the most common type of savings account but also the most widely available savings account type.

Benefits

Drawbacks 

  • Separates savings from money used for spending and paying bills 
  • May allow for transfers to and from a linked checking account
  • Not intended for frequent use  
  • Doesn't have a debit card or paper checks 

High-yield savings account

A high-yield savings account is a deposit account that often comes with a higher interest rate compared to average savings accounts. They are typically operated by online-only banks and credit unions, but some traditional banks may offer competitive promotional rates as well. 

Note that while interest rates and annual percentage yields (APYs) might seem attractive, they are variable, meaning financial institutions can change the interest rate at any time. 

Benefits

Drawbacks 

  • Higher interest rate helps you reach savings goals more quickly
  • Transferring money can be easily done between a high-yield savings account and other bank accounts, in most cases (with limitations based on institutions)
  • Fluctuating interest rates can make returns difficult to calculate and predict 
  • Check writing is not available from these account types

Money market account

money market account is a hybrid between a savings account and a checking account. Your money gains interest over time, and you can make withdrawals like a regular savings account (some financial institutions may limit withdrawals), but you may also have an ATM card and checks as you would with a checking account.

Benefits 

Drawbacks 

  • ATM card or check-writing privileges are possible
  • Interest rates are often higher compared to regular savings accounts
  • Interest rates can fluctuate
  • High minimum deposits and balances are required, in some cases
  • May have withdrawal limitations

Certificate of deposit 

A certificate of deposit (CD) is a type of bank account that has a fixed interest rate over a set amount of time (referred to as the term), and you agree not to withdraw the funds until the completion of the CD term. Banks can offer a range of term lengths (from one month to six years), as well as different types of CDs. If you need to make an early withdrawal, you will usually incur a penalty fee. 

Benefits

Drawbacks

  • Can sometimes yield a higher interest rate than other traditional savings accounts
  • Guarantees a return
  • Means your funds are slightly less liquid
  • Incurs a significant early withdrawal penalty if funds are pulled early
  • Requires action to keep your CD from automatically rolling into a new CD after expiration

Which savings account is right for you?

Storing and saving your money in any one of these types of savings accounts allows it to safely grow over time. When deciding which types of savings accounts to open, be sure to evaluate several factors, such as how often you’ll need to access funds, how much you’re looking to gain in interest and how much money you have available to invest. 

From there, you can match your goals to the savings account that works best for you. Keep in mind, there’s no reason to limit yourself to just one type of savings account. Consider dividing your savings into multiple savings options to take advantage of the different benefits that each savings account type has to offer.

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