Do you know how to choose the right savings account? Some people may not know this, but there are several types of savings accounts available for you to choose from. It is important to understand the different types of savings accounts so you know where to store your money. In this article, I go over the different savings accounts you can use to meet your financial goals.
Different Types Of Savings Accounts
Basic Savings Account
A savings account is a basic bank account. When you deposit your money in a savings account, a bank makes loans with your money. The bank then pays you interest for the privilege of using your money.
Your deposits are insured by the Federal Deposit Insurance Corporation (FDIC) against loss up to the federal limits of $250,000.
You can deposit money into your savings account as often as you want. However, federal regulations prohibit withdrawals to no more than six per month.
Minimum account balances are typically low; however, a savings account usually yields a lower interest rate than a money market account.
I recommend Radius Bank because it offers competitive interest rates, has no monthly maintenance fees, and no minimum balance requirement after $100 to open. Also, their checking account has free ATMs worldwide.
If you want to continue shopping for banks, Bankrate has done a great job listing some of the best basic savings accounts and its rates. This will help you choose the right savings account.
Money Market Account
A money market account is a type of savings account that usually earns higher interest than a basic savings account. However, it usually requires a higher minimum deposit and daily balances than a basic savings account.
Some additional benefits you get with a money market account, that you do not get with a savings account, is you will typically receive a debit card and checks. This makes your account easier to access and thus more liquid than a savings account.
The FDIC insures your deposits against loss up to $250,000. You can deposit money into your money market account as often as you want.
However, like a regular savings account, federal regulations prohibit withdrawals to no more than six per month.
Bankrate has listed some of the best money market accounts and its rates.
Certificates of Deposit (CDs)
At some banks, other types of savings accounts include certificates of deposit (commonly called CDs).
With CDs, you deposit your cash with a bank and agree not to withdraw your money for a specified period of time. In return for that promise, the bank will usually pay you a higher interest rate than a savings account and a money market account.
You usually are paid a higher interest rate, the longer you agree to keep your money in a CD. If you withdraw your money from a CD prematurely, you will get hit with an early withdrawal penalty.
Bankrate has listed the best CDs available right now.
Choose The Right Savings Account For You
So how do you choose the best account for you?
I recommend the basic savings account if you are just starting on your savings journey. A basic savings account is best if you don’t have enough money to cover the higher minimum account balance requirement of a money market account.
If you are a little further along in your savings journey, I would recommend a money market account or a CD. I would keep my money in a CD if I am saving for a short-term goal and I know exactly when I would need the money.
CDs are a good choice for short-term savings goals where you won’t need the money for at least a year or two in the future.
I recommend using the money market account if you need more flexibility accessing your money, or if you need your money in less than a year.
Overall, one of the first steps to taking control of your finances is to have a savings account. Since there are different types of savings accounts to choose from, I recommend that you carefully choose the right savings account for your current situation. Focus on finding the type of savings account that will help you with your savings strategy and ultimately grow your wealth.
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