Our pick for an account you can't touch: American Express® High Yield Savings
- Monthly fees: $0
- Interest compounded daily
- Minimum deposit to open: $0
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There are a few different types of accounts that lock your money away, preventing you from spending it. A certificate of deposit (CD) locks your money away from one month to five years, while it earns a fixed interest rate. It’s more restricting than a traditional savings account because you can’t access your money until the term is finished. If you need to make a withdrawal, you’ll need to give 31 days’ notice and pay a penalty.
There are a couple of key benefits to CDs. First, you get the security of a fixed interest rate and a guaranteed return on your investment. If interest rates drop while your money is locked away, your savings won’t be affected.
Second, these accounts are set up to discourage you from dipping into your savings balance. You typically can’t access the funds immediately, so any money you deposit is safe from the risk of impulse buying and unnecessary spending.
On the other side of the coin, CDs are not all that convenient if you ever need access to your funds in an emergency, and you also won’t benefit from any interest rate increases until your deposit matures.
|Chase Bank||0.01% to 0.05%|
Consider the following features when comparing the pros and cons of a CD account:
Savings accounts offer the benefit of compound interest, and they charge minimal or no fees while giving you quick and easy access to your money. Savings accounts also allow you to continually add money to start building your nest egg. Scheduling an automatic transfer into your account each month can quickly build a sizable savings balance.
Some savings accounts offer features to keep you from falling prey to impulse buys. If you have trouble keeping your hands off your savings, consider getting an account without a debit card so that you can’t make withdrawals outside of business hours. Getting an account that doesn’t allow transfers is also a good idea.
As the name suggests, savings accounts are designed to help you save money, not spend it. The Federal Reserve imposes a limit of six withdrawals per month on savings accounts. This means that if you withdraw money more than six times a month, your bank can prevent the withdrawal, charge you a fee — or even close your account. If you want regular access to your money, use a checking account.
Not all savings accounts are created equal. There are a few things to watch out for when signing up for a new account:
If you’re saving up for your retirement, an individual retirement account (IRA) might be your best option. Any money that you put into a traditional IRA account typically cannot be withdrawn without a penalty until you reach retirement age, and contributions are tax deductible at both the federal and state level. TD Ameritrade offers IRAs with both money market accounts and CD options.
Certificates of deposit and savings accounts can both help you save money. If you think you might need access to your money in the near future, or you want to add money each month, a savings account may be your best option. But if you can commit to keeping your hands off your savings for a specified period of time, a CD can help you add interest and save up. A lot of savers use both options — when your savings account starts to get comfortably high, you can pull money out and put it into a CD. If you choose one with a high interest rate, you can sit back and watch your savings grow.
If you don’t need your money right now, consider investing in an HSA, blue chip stocks and more.
A Roth IRA is a retirement savings account with special tax benefits. Learn more.
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