Savings accounts are deposit bank accounts that earn interest. Some savings accounts provide total access to your money with a card for ATM access, while others lock your funds away to earn a guaranteed return. From high-yield accounts to certificates of deposit, here are six different types of savings accounts that can make your money work harder.
6 types of savings account
1. Traditional savings accounts
These are regular savings accounts offered by traditional banks and credit unions. They’re insured for up to $250,000 through the NCUA or FDIC. Most require a low opening deposit, have a modest interest rate and are typically limited to six withdrawals per month. The average savings account rate is
0.45% APY, but most traditional savings offer rates well below that.
These accounts are often paired with checking accounts, making it straightforward to transfer funds to or from your accounts. Traditional savings accounts are best if you want a no-fuss way to grow your funds — but rates aren’t the strongest, so it can take a while to see a big return.
2. High-yield savings accounts
A high-yield savings account (HYSA) is mostly found at online banks, fintechs and digital institutions. They’re very similar to traditional saving deposit accounts: There are withdrawal limits and are typically insured up to $250,000. They offer rates higher than the national average, with the best-reaching APYs above 5%.
But since they’re typically offered by online banks, you may not get in-person customer support and may be limited when it comes to cash deposits. This may work in your favor if you want to limit your access to the funds or you don’t do much in-person banking.
3. Money market savings accounts
Most savings accounts don’t come with a card, and most checking accounts don’t earn interest — but a money market savings account (MMA) combines the best parts of a savings and a checking account into one. You’ll earn interest on your money like a savings account, and you typically get a debit card and checkwriting privileges like you would with a checking account. MMAs currently have an average rate of
Money market savings accounts are best for someone looking for a streamlined account that builds interest and also gives you more access to your funds. But you may have to plan on monthly fees and a high opening deposit requirement. Like checking and savings accounts, MMAs are deposit accounts so they’re insured.
4. Certificates of deposit
Certificates of deposit — or CDs — are like savings accounts that lock your funds for a set period to earn a guaranteed return. CDs often come with much higher rates than traditional savings accounts, with the top CDs offering rates around 3% to 5% APY. The average rate on a one-month CD is 0.20% APY, and a 60-month CD has an average rate of 1.37%. These deposit accounts are also insured.
But if you need frequent access to your savings, this may not be for you. CDs are only useful if you can leave your funds alone for a while, with terms ranging from six months to a few years. If you withdraw your funds early, there are penalties, such as a fee or forfeiting some or all of the interest you’ve earned.
5. Cash management accounts
Cash management accounts are often offered by brokerage firms, and they’re not typical bank accounts. They often require you to also have a brokerage account so you can easily move uninvested funds into it for easy access. Some even allow you to earn interest, and money held in the account is often FDIC-insured through partnering banks. Some cash management accounts come with a debit card and checkwriting privileges, but others aren’t designed for everyday spending.
6. Specialty savings accounts
There are specific savings accounts made for certain demographics, such as:
- Student savings accounts. These savings accounts are designed for college students between the ages of 18 and 24 and can be found at traditional banks, credit unions or online institutions.
- Kids’ savings accounts. These savings accounts can help your children start earning interest early. There are custodial accounts owned by parents or joint accounts for older kids. Some come with educational resources to help teach your little one healthy savings habits.
- Business savings accounts. These savings accounts are usually set up in your business’ name and can build up your company’s cash reserves.
- Retirement savings accounts. These accounts help you save up for retirement and include accounts like IRAs and IRA CDs.
- Christmas savings accounts. Also called Christmas club accounts, these are geared to help you save up for the holiday season.
What is the best type of savings account?
A high-yield savings account that compounds interest with no monthly fees is a solid choice. That said, there are different accounts suited for different goals.
For example, if your goal is to save for an emergency or vacation fund, then a traditional savings or money market account helps you build a safety net while giving you access to funds when you need them. But if you’re saving for a car you won’t buy for another year, a CD can help you lock in a high-interest rate while you wait to use the funds.
No matter what type of savings account you choose, the key factor is the APY, because that’s what determines how much you can earn over time.
Online savings account will earn you the most money
High-yield savings accounts, money market savings accounts and CDs offered by online banks can earn you the most money. Since online banks don’t have the same overhead costs as brick-and-mortar institutions, they can pass on their savings in the form of higher rates to you.
If your goal is to earn the most money, it’s best to keep your savings away from traditional brick-and-mortar financial institutions. Also, interest-bearing checking accounts will earn you the least amount of money as rates are low, and they often require you to jump through hoops to earn the highest rate.
The two lowest interest-bearing accounts are currently checking accounts with an average of
0.07% APY and one-month CDs, earning an average of
Diversify your savings if you have a lot of cash
If you have a lot of money saved up and you’re not sure where to put it, consider diversifying it. Place a portion of your money in a high-yield savings account, providing easy access for emergencies and short-term goals like an upcoming vacation or purchase. You can then allocate another portion to another account, like a CD, which allows you to lock your money away for a fixed period while earning a competitive rate. This strategy enables you to balance accessibility and growth based on your financial needs and objectives.
— Alexa Serrano Cruz, CAMS, Senior Editor, Personal Finance
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Frequently asked questions
Are there 5% savings accounts?
Yes, there are. Not too long ago, 5% savings accounts were unheard of, but now dozens of banks and online institutions offer accounts with APYs of at least 5% or higher, shattering the current national average of
What is the most common type of savings account?
Traditional or “regular” savings accounts that are offered by most financial institutions are the most common. They’re typically offered alongside checking accounts, have low or no monthly fees and rarely an opening deposit. However, they offer lower interest rates compared to other high-yield accounts like CDs or HYSAs.