Types of Savings Accounts: Where to Park Your Cash with Little Risk
Updated May 10, 2024 at 2:18 pm
Sometimes saving money feels like it’s low on the priority list. After you’ve paid your bills and necessities, you find there isn’t much to put into saving (if any at all). But a little bit goes a long way, and savings accounts are one way you can save money for short- and long-term goals.
Unlike investment accounts, savings accounts are virtually risk-free. Their earnings might be less than what you’d expect on the stock market, but if you’re looking for a low-cost and low-risk way to grow your money, savings accounts are a great place to start. Here’s what you need to know about savings accounts and how to find the right one for you.
Vault’s Viewpoint
- Savings are not for spending: Most savings accounts limit transactions so you can prioritize savings. Some have flexibility where you can get a debit card or checks, but even those come with some limitations to them.
- Not all savings accounts are the same: Different savings accounts have different purposes. Which means they also have different requirements and fees.
- You can have a lot of them: Because they have different purposes, you can have many different savings accounts to meet many different goals. You can have a 529 college savings account for each child while also having a high-yield savings account to save up for a home or car down payment.
What is a Savings Account?
A savings account is a banking account that helps you safely save money. Your bank card has limited transactions, typically comes with the chance to build interest and lets you automatically build up savings through easy deposits and transfers from your checking account.
A savings account is different from a checking account, which is primarily used for making payments or for many different types of transactions. The purpose of a savings account varies by person and purpose. Some folks want to have emergency savings while others are saving for a big purchase, like a car, wedding or big vacation.
Types of Savings Accounts
Traditional (or Regular) Savings Account
This is a bank savings account that earns very little annual percentage yield (APY) but is easy to move money to because you can usually create it alongside your checking account. The APY on regular savings accounts is usually around 0.01%, although some have rates upwards of 0.46%.
Traditional savings accounts typically limit free withdrawals to about six per month before you face a fee or penalty. You can usually access them online or through your bank mobile app.
Some banks offer incentives for opening a savings account with your checking account, although that’s not guaranteed by every bank. These types of accounts are federally insured, whether that’s through the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).
Traditional Savings Account: Pros
- Easy to set up and automate savings so you can set it and forget it
- Can usually open multiple savings accounts if you have different goals you’d like to meet
Traditional Savings Account: Cons
- Earns little interest
- Could face penalties and charges if you go over the monthly withdrawal limit
- May come with monthly maintenance charges
High-Yield Savings Account
A high-yield savings account is a type of savings account that offers a higher APY compared to traditional savings accounts. APYs vary by institution, although they tend to increase when the Fed raises the interest rate.
While most traditional savings accounts have very low yields, the best high-yield savings accounts have rates around five percent APY or higher right now. This is enticing for many savers to maximize their return and avoid putting money into higher-risk investments, like the stock market.
High-yield savings accounts are just as secure as traditional savings accounts and are typically insured by the FDIC or NCUA depending on where your account is held.
High-Yield Savings Account: Pros
- Offers chance to earn high savings rates
- Easy to open, access and automate
High-Yield Savings Account: Cons
- Not always available at the same institution as your checking account
- Might take longer to move funds around compared to regular savings accounts
- Could come with maintenance and other fees
Certificate of Deposit (CD)
A certificate of deposit (CD) is a type of savings account where you put in a lump-sum deposit and earn a higher interest rate over a set amount of months compared to other types of savings accounts. The interest rate varies by institution, how much you deposit and how long the terms for the CD are.
Like savings accounts, CDs are typically FDIC- and NCUA-insured. But the biggest difference is how you access your money in the CD. These types of accounts let you build up higher interest by not touching those funds for the duration of your terms, whether that’s six months or five years. If you do use those funds, you could face a penalty. CD APYs are similar to high-yield APYs and are good for banking customers who can put down a large payment to build up interest over time.
There are different types of CDs based on where you open your account and what kind of return you’re looking for. Some of the best CD rates can be found at the following banks or credit unions:
Certificate of Deposit: Pros
- Higher yield compared to traditional savings accounts
- Very little risk compared to stock market investing
Certificate of Deposit: Cons
- Not very liquid, which hurts those who want an account for emergency savings
- Face penalties and charges if you access funds before terms are up
Money Market Account
A money market account is an interest-bearing account with features similar to a savings and checking account. For instance, you may get some check-writing options and a debit card along with the chance to earn interest.
Money market accounts are deposit accounts and are different from money market mutual funds, which are a type of investment account. And compared to traditional savings accounts, money market accounts tend to earn higher interest.
Money Market Account: Pros
- Hybrid account with features of both savings and checking accounts
- Easily access funds if you need them right away
- Earns higher interest compared to traditional savings accounts
Money Market Account: Cons
- Usually requires a large, upfront deposit
- Limited on withdrawals and transactions
Goal-Specific/Specialty Savings Accounts
Some targeted savings accounts are made specifically for certain goals or purposes. For example, these can be for education or building savings for a child. Custodial accounts or college savings accounts would fit in this category. Flexible spending accounts (FSAs) and health savings accounts (HSAs) are also types of specialty savings accounts.
Standards, requirements and fees all vary based on the type of savings account, the financial institution and how much money is in the account.
Specialty Savings Account: Pros
- Ability to save for specific goals
- Can have many different accounts for different needs
- May have fewer or less fees, depending on the account
Specialty Savings Account: Cons
- Could face lots of rules, regulations and fees
- Interest rates may not be as high compared to other types of savings accounts
- Restricted on how funds are used in the account
Cash Management Account
A cash management account is a savings-type account offered through a brokerage firm. Transactions are more like a checking account but interest rates are competitive like high-yield savings accounts.
These types of accounts may also be FDIC-insured but tend to be insured at a higher rate than regular or high-yield savings accounts. But the amount insured depends on the firm and the amount).
Cash Management Account: Pros
- Competitive interest rates
- Fewer fees than other types of savings accounts
- Has checking account features, including more transaction options
Cash Management Account: Cons
- FDIC insurance isn’t guaranteed since it’s offered by an investment firm and not a banking institution
- May not earn the highest rates compared to other accounts
- May come with more or higher fees
How to Choose a Savings Account
Not all savings accounts will be a great fit for you. Here’s what you should look out for when choosing a savings account.
- Look for a high interest rate: The higher the yield, the more you’ll earn on your savings. A lower yield means less earnings on your cash.
- Find the fewest fees: The more fees you face, the more that eats into your earnings. If you do face some, see how they can get waived or the lowest charges, compared to others.
- See if you’re eligible: Different savings accounts have different requirements. Make sure you’re eligible for the right account before you make a deposit. For instance, if you’re getting a CD, see what the minimum deposit amount is before making it.
- Check accessibility: Is the account easily accessible through your bank? Do they have a user-friendly website or mobile app? Can you visit branches in person if you have questions or issues?
- See if there are any bonuses: Many financial institutions offer bank account bonuses and other incentives. For instance, if you get a savings account and make a certain minimum deposit after opening.
Frequently Asked Questions
Which is the Best Type of Savings Account?
The best type of savings account is the one that best fits your needs. Not all savings accounts are right for every instance, so it’s important to pick the one with the features that matter most to you. That could include features and benefits like high savings rates, low or no fees, check-writing capabilities or debit card access.
What Type of Savings Account Earns the Most Money?
The type of savings account that earns the most money might depend on how much you deposit along with the type of account. Many high-yield savings accounts earn a higher APY compared to traditional accounts. CDs and money market accounts can also earn high APYs.
How Do I Choose a Savings Account?
Choosing a savings account isn’t always about the highest yield and the fewest fees. It also comes down to your needs and goals. For instance, you may want a specific savings account for your child’s education or you might want one for future health needs. Choosing a savings account has many different factors, so pick one based on what’s best for you.
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