The Best Savings Account for You
While all savings accounts serve the purpose of holding your money, they don’t exactly function the same way. Knowing which savings account is right for you ensures that you’re getting the most out of your money. Here’s a breakdown of the four most common savings accounts.
Deposit or Regular Savings Accounts
A deposit savings account is paired with a checking account and provides the added benefit of overdraft protection. This account usually requires a lower minimum balance and provides a lower interest rate. It's a great option if you don’t have a large amount to start saving with. Deposit savings accounts are a good fit if you want to have more access to your funds to withdraw and transfer funds at ATMs, branches, online, etc.
Great option for: short-term goals like building an emergency fund and saving for a vacation
Money Market Savings
A money market savings account provides you with a higher interest rate but usually requires a higher minimum balance to maintain. Banks and credit unions generally offer tiered options depending on your initial deposit. You earn better interest rates when you maintain a higher balance. Just like the deposit savings account, you can also access your funds at ATMs, branches and even write checks to your money market savings account.
Great option for: medium-term goals like auto and down payments on homes
Certificate Accounts
A certificate account, or certificate of deposit (CD), requires you to secure your money for a set amount of time called a term. The longer the term, the better the interest rate. When the certificate matures, you can withdraw your funds or roll them over into a new certificate account with a new term. While certificate accounts offer higher interest rates than the other savings accounts on this list, they do come with some access limitations. Withdrawing money before the end of your term will result in penalty fees, so it’s important to consider liquidity if that’s a factor in your financial plan.
Great option for: medium to long-term goals like saving for college or a wedding
Specialty Savings Accounts
Some savings accounts offer money-earning interest rates, while specialty savings accounts offer tax benefits. The two most common specialty savings accounts are Individual Retirement Accounts (IRAs) and Health Savings Accounts (HSAs).
There are two individual retirement accounts: a traditional IRA, which allows you to defer taxes on your contributions and deduct the amount of your contribution on your federal income tax return for the year, and a Roth IRA, which gives you tax-free withdrawals in retirement.
A health savings account helps you save and pay for any medical expenses like copays, medication and more. Health savings accounts also allow you to defer taxes on your contributions for qualified medical costs.
