Basic Savings Accounts
A basic savings account is probably what we are most familiar with. You simply deposit money into an account, earn some interest, and take the money out when you need it. There might be limits on how often you can withdraw funds, but you will almost always be able to add to the account as often as you like. This is a really basic savings account and, unfortunately, with the interest rates as low as they have been for so long, the interest rate offered is not so attractive. If your needs are simple; that is, you need a place to store your money, a basic savings account will almost certainly meet your banking needs.
Online Savings Accounts
Online savings accounts generally offer higher interest rates. Many online banks don’t have brick and mortar branches, so the cost savings are passed on to the customer. In addition, there are typically no, or very minor, monthly fees. Online savings accounts also tend not to have a minimum balance requirement and offer some form of debit card. With the latest security technologies and advanced encryption, online savings accounts are a safe option.
Keep in mind that online savings accounts are self-service and getting help with an issue might be difficult. Another downfall is that you might need to link your savings account to another account, perhaps a checking account. You might be required to initially make the first deposit from your checking account into your online savings account, and then you can make deposits from other sources, even your mobile phone.
Money Market Accounts
Money market accounts, or MMAs, look and act very much like a typical savings account. The main difference is that you usually have easier access to your cash, can write checks and spend with a debit card. However, as with many savings accounts, there will be limits on how many times a month you can make withdrawals. Money market accounts typically pay more than the standard savings account, but they also tend to require larger deposits. They are a good option for emergency savings because you have access to your cash but can still earn interest.
Certificates of Deposit
Certificates of deposit, or CDs, are similar to a savings account but they typically pay more interest than a standard savings account. The trade-off, of course, is that your funds are locked in for a specific amount of time. It’s possible to withdraw funds ahead of the expiration, but you will more than likely have to pay a penalty. This account makes sense for money that you don’t need access to immediately.
Student Savings Accounts
Student savings accounts are for exactly who you would expect them to be for, students. This allows students to keep money in a smaller account without paying fees or at least discounted, and quite often, banks also make them accessible for low income people or to those who are not active in the workforce. If you are student, there will likely be some variation of this saving account at your financial institution. This serves the bank’s goal of perhaps keeping you as a lifelong customer as this is often one of the first accounts that people open.
Specific Savings Accounts
There are other savings accounts, such as “Christmas Club” type accounts, which are specifically for Christmas gifts. There are also ones that are geared toward vacations, and many other things, such as education. Ultimately, this is more of a psychological thing than anything else, and they don’t necessarily earn any more interest than a standard savings account. That being said, some banks throw in bonuses for these special saving accounts. If you are a steady saver, something like this could work out to your advantage. However, there may be specific times of the year that you must either take money out, or possibly deposit it. Make sure to read all the regulations.
Which One is Best?
On the whole, basic savings accounts tend to work for most people. If you are more tech savvy and do all of your financial business online anyway, online savings accounts can work too. Money market accounts tend to be for people who have more money to begin with, and therefore, some people will simply not be able to qualify. At the end of the day, it comes down to how quickly you need your money and whether or not you need human interaction. It’s easier to access your money if it’s in a money market account or an interest paying checking account as opposed to a CD, as an example. The two questions you should be asking yourself are can I meet the minimum requirements of the savings account and how much access do I need to these funds?