Wondering where to turn when it comes to opening a new savings account? Consider these items first.
A savings account is one of the safest ways to save money. There are a variety of savings accounts to help you in your financial planning. However, it can be challenging to decide which type is right for you because banks offer a wide range of options. To better help you choose, this article will provide you with what you need to know about the various types of savings accounts.
What Is a Savings Account?
To better choose the right savings account, it’s best to begin by understanding what a savings account is. A savings account is a type of account that banks, financial institutions, or credit unions offer that provides you with a secure location to store your money and earn compound interest. A savings account serves as a secure place to store money that isn’t being used for regular expenses. It allows you to deposit money and also withdraw money if you need to.
However, the majority of banks and financial institutions will give you compound interest on the remaining balance of your savings accounts. Every bank or financial institution has a unique way of providing compound interest, but it is typically a percentage of the amount in the account. Generally, the more money you have in your savings account, the more compound interest you are going to earn.
Types of Savings Accounts
Knowing the various types of savings accounts will help you distinguish between them when comparing their features, areas where you can access them, and their functions. This will help you select the best savings account for you. Here are different types of savings accounts with features that may help meet your savings needs.
Regular Savings Account
A regular savings account is one of the most common types of savings accounts, also referred to as “monthly savers” or “regular savers”. It is a bank account where you can keep your money while also earning interest. If you can consistently save money each month, regular savings accounts will work best for you. Money is deposited into a regular savings account once per month or as specified in the agreement. However, the interest rate can be lower compared to other types of saving accounts. With a regular savings account, you can manage your account online, through mobile banking, over the phone, or at a branch location.
Money Market Accounts
Money market accounts are comparable to regular savings accounts, but they also have some features of checking accounts. These accounts, which are accessible through banks, credit unions, and online lenders, are normally interest-bearing and insured up to $250,000. If you want to save money but like the idea of having access to it at any time, you might find money market accounts useful. These accounts typically offer a higher annual percentage yield than regular savings accounts and pay interest based on the current market rates. In addition, you can write checks from it in exchange for maintaining a higher balance.
Certificates of Deposit
Time deposits, such as certificates of deposit (CDs), require you to commit to keeping your funds in the account for a predetermined length of time. Your savings accrue interest during that time, and you typically have the option to withdraw them or roll them over into a new CD when the CD matures. This distinguishes these accounts from other kinds of savings accounts because time is a factor.
Both conventional banks and online banks offer CDs. Online banks typically have better interest rates than traditional banks. The typical CD term ranges from 30 days to 60 months, with longer terms typically offering higher rates. If you want to earn competitive rates and won’t need to immediately access your savings, this is a good option for you.
Relationship Savings Accounts
You can open a relationship savings account if you also have a matching checking account. Depending on the type of coupled accounts you maintain, benefits could include waived monthly maintenance fees and higher interest rates. If you wish to maintain a larger balance to receive a higher yield, the relationship savings account could be ideal for you. It’s a great way to get started toward higher dividends since it usually has a low opening balance.
High-yield Savings Account
High-yield savings accounts are a type of account that offers a higher annual percentage yield than regular savings accounts. High-yield savings accounts are typically found at online banks, neobanks, and online credit unions. Along with better rates, online banks typically impose fewer or lower fees, such as monthly maintenance or excess withdrawal charges. This kind of savings account might be appealing if you feel more at ease managing your account online or through mobile banking than going to a branch. If you want to earn savings at a rate that is more competitive while lowering fees, high-yield savings accounts can be advantageous for you.
How To Choose a Savings Account
With the information available on various types of savings accounts, it is best to select the one that best suits your needs. Here are some key factors to take into account when selecting the best savings account to help you make your decision:
Decide on your spending preferences for the money you’re saving. Finding a savings account that enables you to set goals inside the account might be worthwhile if you’re saving for multiple objectives.
Take a look at interest rates. Different interest rates are available for various savings accounts. Choosing higher interest rates based on your needs will aid in the growth of your financial resources.
Think about the minimum balance requirements. Many savings accounts have minimum balance requirements, which are daily assessments of the least amount of money you must have in the account. If you fall below that amount, fees might apply.
Consider the accessibility and ease of use. It is not necessary to do all your banking in one location, and an online account might be the most practical. Examine the procedures for deposits, transfers, and withdrawals from the savings account.
Don’t stress too much if you’re having trouble choosing the right savings account. The chances of having a good account are high as long as you open one with a reputable bank that offers high-yield interest and no monthly fees. However, it’s always best to choose a savings account with features that meet your savings goals.