What Are The Different Types Of Savings Accounts?
Due to advancement in technology, banking has become so easy, as it has been made possible for you to access your bank account anywhere you are without necessarily going to your branch bank. This is possible due to the introduction of virtual cards that enable you to carry out financial transactions online. All you need is to enter your password to confirm any financial transaction in your account.
A bank account is a record maintained by a bank, in which it records an ongoing series of cash inflows and outflows on behalf of a customer. Basically, banks offers two main kinds of accounts: Savings and checking accounts. But we will be looking at different types of savings accounts.
Savings accounts are safe places to keep the money you don't intend to spend right away. They are useful when planning for short-term needs like house monthly ranges and longer-term goals such as building a house in future.
Before you open a savings account, it is for you to understand the kind and type saving account and it is preferable you choose an account that is advantageous to you.
What Are The 6 Types Of Savings Accounts?
There are different types of savings accounts to choose from and know that these accounts are not alike although may be similar. Some of these savings accounts are:
- Traditional savings accounts
- Money market accounts
- Certificate of deposit accounts
- Cash management accounts
- High-yield savings accounts
- Specialty savings accounts
Knowing the best type of savings accounts and which type you have to engage in, may help you to attained your goals and needs as planed and also the right place to keep your money.
To understand different types savings accounts means looking at their features and what they are designed to do.
When you to want to open a savings account, it is important to know the following:
- Is this account designed for any specific purpose or goals ?
- How much interest does this account earns base on the amount in it?
- Are there minimum deposit requirements or minimum balance requirements to meet?
- Does the bank charge any fees on this type of savings accounts?
- Are there any tax benefits or advantages associated this account?
- How much fees will be paid for withdrawing money from this savings account?
- How frequent can i access the money in this account?
Having the right answers to the above questions can have you choose the types that is best.
1. Traditional or Regular Savings Account
This type of saving account is good for people who need to save money for a short or long term and are not as concerned about getting the best interest rate, expressed as the annual percentage yield(APY). This type of account allow you to make up to six months withdrawal(not including withdrawals with ATM, in-person or at a branch) before incurring a penalty.
You might find this types of savings accounts at traditional banks or credit unions. It allows you to earn a low interest rates than other savings accounts. Many banks and credit unions allows you to open a regular savings account with a low minimum deposit.
Some banks and credit unions may allow you to manage your account online , through mobile banking or at a branch.
2. High-Yield Savings Account
This type of saving account is good for people who want to earn a more competitive rate on savings while minimizing fees. Typically found at online banks, and online credit unions. It offers a higher APY( Annual Percentage Yield) compared to regular savings accounts.
This is one of the best savings accounts to maximize your money's growth. Online banks offer different types of high yield saving accounts to attract savers who want to earn a better interest rate . They typically charge lesser fees, like as monthly maintenance or excess withdrawal fees, in addition to delivering greater rates.
This type of savings account may be appealing if you are comfortable managing your account through website or mobile banking.
The drawbacks of this types of savings account is that; no branch banking access means you can't deposit cash directly into your account at a branch.
It is difficult transferring money from this type of account to another account in another bank as it might take few days to process and might be difficult to access money through ATM, depending on the bank
3. Money Market Accounts
This type of saving account is good for people who want to earn interest on savings while having more options for accessing their money. It combine features of a regular savings account with those of a checking account.
This types of saving accounts are found at Online banks, credit unions and brick-and-mortar banks. The account allows you to earn interest on your savings. Have better rates than regular savings account.
You may also be able to write checks from this account or do withdrawals through ATM or debit card.
This account is restricted to six withdrawals monthly and any addition will be charge a fees.
A higher minimum deposit may be required to open this type and also you will be require to pay a monthly fee.
4. Certificate of Deposit(CD) account
This type of saving account is good for people who want to earn comparative rates and will not need to access their savings right away. These are time deposit accounts, meaning you agree to leave your money in the account for a set period to earn interest without withdrawal and when the time is right, you can then withdraw your savings or roll it in a new CD account.
The greater the time and amount, the higher the interest rate and vice versa. The accounts is best for you to save money that you are sure not to immediately need it because any withdrawal before the set time will be charge an early withdrawal fees.
5. Cash Management Account
These types of saving accounts are good for people who want to keep cash available to invest in their brokerage or retirement account. These accounts do not have specific design for saving.
These accounts let you hold cash you plan to invest in a taxable brokerage account or a retirement account.
Online brokerages and robo-advisor platforms may cash management accounts to their investors. The money in the account can earn interest, generally at a higher rate than you would receive from a bank.
Depending on the brokerage, you may get all the standard features you had expect with a checking account as well. This may enable you to write checks, pay bills or transfer funds to accounts at your banks.
6. Specialty Savings Account
Good for people who want accounts tailored to specific savings goals.
Specialty savings accounts, as opposed to being a catch-all for money you don't intend to spend, are intended to assist you attain specific savings goals. And in some cases, they can be intended for a specific type of person, rather a saving goal.
For example, the following types of accounts can be created on behalf of a child. You create: Kid's savings accounts, student saving account or custodial savings accounts.
Student savings accounts allow you set aside money for your educational expenses on a tax-advantaged basis.
Other types of specialty savings accounts include;
- Retirement savings accounts such as Traditional and Roth individual retirement accounts.
- Healthcare savings account such as; flexible spending and health savings account
- Clubs and meeting accounts
Some Benefits of Opening a Savings Account
- Savings accounts earn you interest on the money you have saved.
- It help you keep money for any emergencies
- It help you growth your finance by encouraging savings and limiting expenditures.
- It protects your cash from theft and losses.
Final Thought on Different Types of Savings Accounts
Banks accounts are created by bankers to their customer and it depends on the type of account that the customer request for.
When choosing a savings account, its important to remember that you understand the type of account and the reason to choose it. Depending on what you want to achieve financially, you may decide to open either a specialty account type , money market accounts CD accounts etc.