7 Types of Savings Accounts

What Is a Savings Account?

A savings account is a type of bank account where you can deposit the money you are not spending. You deposit funds into this bank account, the bank lends the funds, and you later get a portion of the interest rate. This form of account is a great way to save money for unforeseen costs, personal objectives, or both. While current accounts are intended for day-to-day banking, such as paying bills, savings accounts are solely for the purpose of saving money in a safe and, if possible, profitable manner.

Types of Savings Accounts

A savings account should provide you with security and stability in general. Many, if not all, banks have savings accounts, and the majority of them are very similar. There are several modern models that operate in more disruptive financial markets. This article will bring you the traditional and disruptive options. So here are 7 types of savings accounts:

1. Regular Savings Account

This type of account is ideal for those who wish to save money in the short or long term but aren't worried about having the highest interest rate. Regular or traditional savings accounts are what you would usually think about when you decide to start saving. You can usually find this type of savings account at banks and credit unions. From the savings products available in the market nowadays, traditional savings accounts probably offer the lowest interest rates. Another downside to this type of savings product is that it often charges fees for account maintenance and excess withdrawals.

But there are advantages to regular savings accounts. For starters, you can manage your account from bank or credit union branches, with in-person customer service. If that is something you enjoy when dealing with your financials, this option might be a good fit. On top of that, regular savings accounts are usually insured by the Federal Deposit Insurance Corporation (FDIC) to up to $250,000 per depositor, per account ownership category, or by the National Credit Union Administration (NCUA).

2. High-Yield Savings Account

If you are looking for a more competitive interest rate for your savings, this may be a great option for you. High Yield type of account pays higher interest rates than regular savings accounts. High-yield savings accounts are frequently offered by online banks. They entice savers who wish to collect a higher interest rate than what would be found at traditional banks and credit unions. If you choose to manage your account by online or mobile banking rather than visiting a branch, this form of savings account may appeal to you.

On top of the better interest rates, high-yield savings accounts offered by online banks also usually have fewer or lower fees, from monthly maintenance to withdrawal costs. Some of these accounts don’t charge fees at all. Similar to conventional savings accounts, high-yield savings accounts are often insured by the FDIC or the NCUA. A downside to this type of account is that transfers to another bank can take up to a few days, and some of them don’t offer easy access via ATM.

3. Money Market Account

Money market accounts (MMAs) blend the benefits of a savings account with the convenience of a checking account. Like savings accounts, MMAs allow you to earn an interest rate on your savings. But, at the same, it offers features such as writing checks from your account or accessing your money from an ATM or with a debit card, like checking accounts. However, money market accounts tend to offer limited checking services. Generally, the maximum number of checks that you can write on your money market account per month is relatively low (from four to ten times). If you go over your monthly cap, you will be charged a fee. If you do it regularly, your account can be closed by the bank.

In return for demanding such a restricted withdrawal activity, money market accounts offer a higher interest rate than standard savings accounts. If you go over your monthly cap regularly, you will be charged a fee, or your account will be closed by the bank. These accounts are available at both brick-and-mortar and online banks and are insured by the Federal Deposit Insurance Corporation (FDIC).

4. Certificate of Deposit

If you are not in a rush to access your money, a certificate of deposit (CD) can be a good option for you. In this type of saving, the longer you are willing to leave your money locked, the higher the interest rate you can get. One-year and two-year certificates of deposits, for example, offer higher returns than traditional savings accounts. But the returns are still lower than other saving products.

Once you deposit the money in this investment, it will be locked for the fixed duration of the CD, which can go from a few months to a few years. If you touch this money in the CD before the agreed term, you may be subject to fees and even penalties. Therefore, this option doesn’t offer much liquidity. Terms of certificates of deposits vary a lot between each other. Interest rates and early withdrawal penalties can be extremely different from one CD to another. So, making some research beforehand is important.

5. Cash Management Account

Cash management accounts are not exactly the same as savings accounts. In actuality, these accounts allow you to keep cash that you might choose to invest in a taxable investment portfolio or a savings account. Cash management accounts may be available via online brokerages and robo-advisor platforms. Money in the account can collect interest, which is usually higher than the yield offered at banks. However, the interest rates of cash management accounts are usually still lower than the rates offered by high-yield savings accounts.

Depending on the brokerage, you might also be able to get all of the basic checking account functionalities. Features such as writing checks, paying bills, or transferring money between accounts can also be available at cash management accounts. An important thing to highlight is that, unless this account is offered by a third-party bank, they are usually not FDIC insured.

6. Tailored Savings Accounts

If you have a clear end goal in your head for your savings account, there is a chance that there is a specific type of account that is perfectly tailored for this goal. Rather than being a catch-all for the money you are not spending, specialty savings accounts are intended to help you meet a specific savings target. They can also be built for a specific type of individual rather than a particular objective in some situations. Some examples of tailored savings accounts are:

• Children’s savings accounts
• Custodial savings accounts
• Student savings accounts
• Christmas Club savings accounts
• Home down payment savings accounts
• 529 college savings accounts
• Traditional and Roth Individual Retirement Accounts
• Health Savings Accounts (HSAs)

These accounts are available at many banks, credit unions, brokerages, and investment firms. Some of these accounts might have requirements for you to be eligible for them. Health Savings Accounts, for example, can only be used if you have a high-deductible health plan. But if you fit the requirements, many of these accounts offer great tax advantages and savings services for the specific goal they serve. Just bear in mind, though, that there could be limitations on when and how you can withdraw such funds in the future.

7. Crypto-Based Savings Accounts

Cryptocurrencies, such as Bitcoin and Ethereum, are part of a new and still in developing market. The cryptocurrency market offers a lot of opportunities with very high returns on investment. But this comes with a high risk, since it is an extremely volatile and speculative market. With the advancements of decentralized finance, new services based on cryptos surged, offering a way to tap into this promising market with lower risks. One of these services is crypto-based savings accounts.

They work quite similar to online high-yielding savings accounts. The difference is that the lending side of the business is focused on the crypto market. The returns are not as high as the rest of the crypto market but are still higher than any other option available nowadays. For example, crypto saving accounts can pay interest rates as high as 12%. This option is safer than most crypto investments due to a network of overcollateralized lending partners. However, it still has some risks, since most of these accounts are not FDIC or NCUA insured.

You Can Have Multiple Savings Accounts

When making the decision of which type of savings account to choose, remember you don’t need to have only one. Actually, having more than one savings account can not only organize more your financials but also keep your money safer. Each goal might demand a distinct type of account. Or you can take advantage of higher interest rates in more risky options while staying with the insured ones for another portion of your savings. In the end, it will depend on your objectives and needs. Just make sure you double-check the interest rates and any penalties you might incur to ensure you choose the right accounts for you.