6 Types Of Savings Accounts – Forbes Advisor

Savings accounts can be safe places to keep the money you don’t intend to spend right away.

These accounts are useful when planning for short-term needs, such as an emergency fund, and longer-term goals like stashing away cash for a down payment on a home.

There are different types of savings accounts to choose from, and they’re not all alike. The options include traditional savings accounts, high-yield savings accounts, money market accounts, certificates of deposit, cash management accounts and specialty savings accounts.

What are the best types of savings accounts, and which types should you have? It depends on your needs and goals.

Knowing how the various savings account options compare can make it easier to select the right place to keep your money.

Types of Savings Accounts

Distinguishing between different savings accounts means looking at their features, where you can open them and what they’re designed to do.

As you compare different savings accounts, it can help to ask these kinds of questions:

• Is this account designed for any specific purpose or goal?
• How much interest does this account earn?
• Are there minimum deposit requirements or minimum balance requirements to meet?
• Does the bank charge any fees for this type of savings account?
• Are there any tax benefits or advantages associated with this savings account?
• How accessible is the money in the account?
• Will I pay any penalties for withdrawing money from the account?

Doing this kind of research can help you decide which types of savings accounts to have. From there, you can choose where to open them and how to fund them.

1. Traditional or Regular Savings Account

Good for: People who need to save money for the short or long term and aren’t as concerned about getting the best interest rate, expressed as the annual percentage yield (APY).

Traditional savings accounts are what you may immediately think of when you consider where to save. These are the savings accounts you typically find at traditional banks or credit unions.

These types of savings accounts generally allow you to earn interest on your money, although they usually pay lower rates than other savings products. Many banks and credit unions allow you to open a regular savings account with a low minimum deposit.

Traditional savings accounts typically allow you to make up to six monthly withdrawals (not including ATM withdrawals or in-person withdrawals at a branch) before incurring a penalty. The relaxation of Regulation D restrictions in 2020 removed the six-withdrawal limit, although your bank or credit union still has the right to charge you a fee for exceeding the monthly limit.

Banks and credit unions may allow you to manage your account online, via mobile banking, by phone or at a branch.

If your bank is insured by the Federal Deposit Insurance Corporation (FDIC), then your deposits are insured for up to $250,000 per depositor, per account ownership category, in the event of a bank failure. The National Credit Union Administration (NCUA) provides similar insurance for federally chartered and most state-chartered credit unions.

Pros

• It’s usually easy to open a regular savings account at a branch, and some banks allow you to do so online.
• You can earn interest on your savings to grow your money.
• You can visit a branch if you need help or want to deposit cash.

Cons

• The interest rates are usually low compared to other savings options.
• Monthly maintenance fees may cancel out interest earnings.
• Additional fees may apply for excess withdrawals.

2. High-Yield Savings Account

Good for: People who want to earn a more competitive rate on savings while minimizing fees.

High-yield savings accounts—typically found at online banks, neobanks and online credit unions—are savings accounts that offer a higher APY compared to regular savings accounts. This is one of the best types of savings accounts to maximize your money’s growth.

Online banks often offer different types of high yield savings accounts to attract savers who want to earn a better interest rate than what is found at brick-and-mortar banks and credit unions. This type of savings account may be appealing if you’re comfortable managing your account via website or mobile banking versus visiting a branch.

High-yield savings accounts are FDIC or NCUA insured, just like traditional savings accounts. In addition to offering better rates, online banks tend to charge fewer or lower fees, including monthly maintenance or excess withdrawal fees.

Pros

• You could earn a much higher interest rate compared to traditional savings accounts.
• Online banks typically have lower minimum deposit requirements to open an account.
• You’re less likely to be charged a monthly fee at an online bank.

Cons

• No branch banking access means you can’t deposit cash directly into your account at a branch.
• Transferring money between an online savings account and accounts at another bank can take up to a few days to process.
• You may or may not have access to your money via ATM, depending on the bank.

3. Money Market Accounts

Good for: People who want to earn interest on savings while having more options for accessing their money.

Money market accounts (MMAs) combine features of a regular savings account with features of a checking account. You can find these accounts at brick-and-mortar banks, online banks and credit unions.

These accounts, which may also be called money market savings accounts or MMSAs, allow you to earn interest on your savings. Rates are typically better than regular savings accounts and some offer rates similar to high-yield savings accounts. You may also be able to write checks from your account or access funds with an ATM or debit card.

Similar to regular or high-yield savings accounts, banks can impose a fee if you make more than six withdrawals per month, even though the relaxation of the federal Regulation D restrictions now allows for readier access to your funds. Going over the monthly limit could trigger a fee or result in the institution closing your account if it happens frequently.

Pros

• Money market accounts can offer better rates than other types of bank savings accounts.
• You may be able to write checks from your account or access your money using a debit or ATM card.
• You can open money market accounts at traditional banks or online banks.

Cons

• A higher minimum deposit may be required to open a money market account.
• Interest rates may be tiered, meaning you’ll need a higher balance to earn the best rates.
• Banks may charge a monthly fee for money market accounts.

4. CD Account

Good for: People who want to earn competitive rates and won’t need to access their savings right away.

Certificates of deposit (CDs) are time deposits, meaning you agree to leave your money in the account for a set period. During that time, your money earns interest and, when the CD matures, you typically can withdraw your savings or roll it into a new CD. That sets these accounts apart from other types of savings accounts since there’s a time factor at work.

You can find CDs at traditional banks and online banks. Between the two, online banks tend to offer better interest rates. CD terms typically range from as short as 30 days or as long as 60 months, with longer terms usually boasting higher rates—although not always, especially in a lower interest rate environment.

CDs are best for the money you know you won’t immediately need since banks can charge an early withdrawal penalty if you withdraw your savings before the maturity date. Creating a CD ladder of multiple CDs with varying maturity dates can offer a work-around for this issue.

Pros

• CDs can offer above-average interest rates for savers pursuing short- or longer-term goals.
• There are typically no monthly maintenance fees involved with CD accounts.
• CDs at online banks may offer lower initial deposit requirements.

Cons

• Withdrawing money from a CD before its maturity date may trigger an early withdrawal penalty.
• CDs at traditional banks tend to offer lower interest rates than online banks.
• Putting your savings into a longer-term CD makes it harder to capitalize on future interest rate increases.

5. Cash Management Account

Good for: People who want to keep cash available to invest in their brokerage or retirement account.

Cash management accounts are different from other types of savings accounts because they’re not specifically designed for saving. Instead, these accounts let you hold cash you may plan to invest in a taxable brokerage account or a retirement account.

Online brokerages and robo-advisor platforms may offer cash management accounts to their investors. The money held in the account can earn interest, often at a higher rate than what you’d get at a bank.

Depending on the brokerage, you may get all the standard features you’d expect with a checking account as well. For example, you may be able to write checks, pay bills or transfer funds to accounts at your bank.

Pros

• They’re a convenient way to earn interest on money you plan to invest.
• Cash management accounts can offer benefits and features of both checking and savings accounts.
• Accounts may offer higher-than-normal FDIC coverage limits by partnering with multiple banks.

Cons

• High-yield savings accounts could offer better interest rates on the money you’re saving.
• Since they’re attached to online brokerage accounts, you may not have access to branch banking.
• These accounts aren’t always covered by FDIC insurance.

6. Specialty Savings Account

Good for: People who want accounts tailored to specific savings goals.

Specialty savings accounts are designed to help you reach specific savings goals, rather than being a catch-all for money you don’t plan to spend. And in some cases, they can be intended for a specific type of person, rather than a savings goal.

For example, there are different types of savings accounts for minors. Three types of savings accounts you might set up on behalf of a child or teen include:

You can also set up different types of education savings accounts, including 529 college savings accounts and Coverdell Savings Accounts. These two types of college savings accounts allow you to set aside money for higher education expenses on a tax-advantaged basis.

Then there are different types of retirement savings accounts you could set up for yourself, including Traditional and Roth Individual Retirement Accounts (IRAs) and IRA CDs. Meanwhile, you may also open an account designed to help you save for healthcare: a Flexible Spending Account (FSA) or Health Savings Account (HSA).

Finally, there are other types of savings accounts to have, depending on your needs. For instance, you may open a Christmas Club savings account or a home down payment savings account to hold money for those goals.

You should be able to find most of these accounts at banks, credit unions, brokerages or investment companies. In the case of a Health Savings Account, you’d only have access to one of those if you have a high deductible health plan.

Opening one or more specialty savings accounts may make sense if you have a singular purpose for saving money. Just keep in mind that there may be restrictions on when and how you can withdraw those funds later.

Pros

• They can help you save money for a variety of specific financial goals.
• Specialty accounts can earn interest to help you grow your money, just like other savings accounts.
• You may pay low or no monthly maintenance fees depending on the account.

Cons

• Some specialty accounts, such as IRAs, 529s and HSAs, have strict tax rules for making withdrawals.
• The interest rates you earn for child savings accounts, student accounts or Christmas Club accounts may be lower than high-yield or even regular savings accounts.
• Specialty accounts may have restrictions on who can open them.

Why Would You Put Money in a Savings Account?

Here are reasons why it can make sense to put money in a savings account:

• You can earn interest. Putting money into a savings account allows you to earn interest on your balance. Some checking accounts pay interest, but many do not. Money left to sit in a non-interest-bearing checking account doesn’t have a chance to grow.
• It can help you save and not spend. Having a savings account may help you avoid spending money that’s earmarked for a specific goal. Keeping all of your money in a checking account, for example, could make it easier to spend money you intend to save.
• It can help with financial emergencies. Even if you don’t have a set savings goal, having a savings account can still make sense. Having money in a savings account can make it easier to pay bills and everyday expenses in case of an emergency—if you lose your job or your car breaks down, for example. This way, you don’t have to turn to a credit card or a high-interest loan. And if you don’t have to use your savings for an emergency, you can keep growing your money without having to worry about racking up debt.
• It can keep your cash safe. Keeping your money in a savings account also offers a measure of protection. If you were to keep cash at home, for instance, it could be stolen. Walking around with a wallet full of cash could also put you at risk of theft or loss. But it’s protected up to the total coverage limit when your money is in a savings account at a bank insured by the FDIC or credit union insured by the NCUA. As of 2023, that limit is $250,000 per depositor, per account ownership type, per financial institution.

Bottom Line

When choosing a savings account, it’s important to remember that you don’t have to pick just one. Depending on what you want to achieve financially, you may decide to open multiple savings accounts, CD accounts, money market accounts or specialty accounts. To find the best account for your needs, consider your financial goals.

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