Types of Savings Accounts

The most common types of savings accounts are traditional savings accounts, money market accounts and certificates of deposit. Savings accounts generally offer a safe and stable way to store your cash and earn interest over time. Unlike checking accounts, savings accounts are not intended for frequent daily transactions.

Each type of savings account has advantages that allow it to play a distinct role in your finances. For example, you might want a traditional account to build an emergency fund or pay for a vacation, a CD to lock in interest earnings for a predetermined period of time, or an IRA to supplement your income during retirement.

1. Traditional Savings Account

   Traditional savings accounts typically earn a relatively low-interest rate and may have minimum balance requirements. Most banks allow you to make six withdrawals or transfers per month, and some accounts do not have any limits at all. Traditional savings accounts are best for achieving short-term goals like saving for a vacation or establishing an emergency fund.

   Pros:

   • Can be opened with a low minimum deposit or without a deposit at all.
   • Low or no fees in most cases.
   • Safe place to store funds.
   • Access to your money via electronic transfers, ATM withdrawals, and teller transactions.

   Cons:

   • Low interest rates, which can result in slow savings growth.
   • Sometimes have fees for not meeting minimum balance requirements.
   • Limited features and benefits compared to other types of savings accounts.

   You can compare the best savings accounts here at WalletHub.

2. High-Yield Savings Account

   Typically offered by online banks or credit unions, these accounts have higher interest rates than traditional savings accounts. Pretty much everything else is the same, though.

   Pros:

   • Higher interest rates than basic savings accounts.
   • Lower minimum deposit requirements and monthly maintenance fees than traditional savings accounts.
   • Convenient online management options.

   Cons:

   • Interest rates could be variable, reducing your potential annual percentage yield (APY).
   • Online banks may have limited branch access or ATM locations.
   • Transferring money from an online bank to other accounts may take up to a few days to process.

   You can compare the best high-yield savings accounts here at WalletHub.

3. Money Market Account (MMA)

   A money market account combines the features of a savings account and a checking account. It usually offers higher interest rates than traditional savings accounts, and you can write checks or use a debit card. However, MMAs may have higher minimum balance requirements and limit monthly withdrawals.

   Pros:

   • Combines the features of a savings account and a checking account.
   • Higher interest rates than traditional savings accounts.
   • Gives you the ability to write checks and use a debit card, making certain transactions more convenient.

   Cons:

   • Higher minimum balance requirements than traditional savings accounts in most cases.
   • Monthly withdrawals or transactions may be limited (usually to six).
   • Interest earnings may be tiered, so you must increase your balance to earn more.

   You can compare the best money market accounts here at WalletHub.

4. Certificate of Deposit (CD)

   A CD is a savings account that offers a fixed interest rate for a specified period, ranging from a few months to several years. CDs typically require a relatively high minimum deposit, and penalties usually apply for early withdrawals.

   Pros:

   • Offers higher interest rates than traditional savings accounts.
   • Provides a fixed interest rate for a specified period, ensuring predictable returns.
   • Specialty CDs have additional features such as a step up in rates, no penalty for early withdrawals, or tax advantages.

   Cons:

   • Higher minimum deposit requirement than other types of savings accounts.
   • Penalties for early withdrawal that can negate interest earnings.
   • May lock you into a rate that is lower than other investment options.

   You can compare the best CDs here at WalletHub.

5. Cash Management Account

   A cash management account (CMA) typically combines the features of a checking, savings, and investment account, providing a holistic approach to managing your finances.

   Pros:

   • Have features like checks, debit cards, online bill pay, and electronic fund transfers.
   • May provide competitive interest rates on the cash portion of your account.
   • Can offer the option to invest in various financial products such as mutual funds, stocks, bonds, or exchange-traded funds (ETFs).

   Cons:

   • Requires a higher initial deposit and monthly minimum balance than traditional savings accounts.
   • Sometimes charge monthly maintenance and transaction fees.
   • May have fewer investment options than brokerage accounts.

6. Individual Retirement Account (IRA)

   IRAs are retirement savings accounts that offer tax advantages. There are different types of IRAs, including traditional IRAs, Roth IRAs, and SEP IRAs. Each has specific rules and benefits.

   Pros:

   • Offers tax advantages, such as tax-deductible contributions (traditional IRA) or tax-free withdrawals (Roth IRA).
   • Provides a vehicle for long-term retirement savings.
   • Offers several investment options, including stocks, bonds, and mutual funds.

   Cons:

   • Contributions may be subject to income limits and annual caps.
   • Early withdrawals before retirement age may incur penalties.

7. Health Savings Account (HSA)

   HSAs are designed to help people save for medical expenses. They offer tax advantages and are available if you have a high-deductible health plan.

   Pros:

   • Has tax advantages, such as tax-deductible contributions and tax-free withdrawals for medical expenses.
   • Any unused contributions roll over from year-to-year. For example, if you contribute $3,000 to your HSA, but only spend $1,000 on qualified medical expenses, the remaining $2,000 will roll over for you to use the following year.

   Cons:

   • Requires a high-deductible health plan to qualify for an HSA.
   • May have limited use for non-medical expenses, with penalties and taxes imposed.
   • Some HSAs may have fees for account maintenance.

   You can learn more about how HSAs work here at WalletHub.

Compare Popular Types of Savings Accounts

Note: APY ranges reflect rates available as of October 2023.

Tips for Choosing the Best Savings Accounts

To choose the best savings account for your needs, evaluate how you bank and determine the features you value the most. The factors you should take into consideration are your short- and long-term goals, interest rates, fees, minimum balance or deposit requirements, transaction limits, and account access.

Understand Your Goal: Understand what you want from a savings account. Whether you’re saving for an emergency fund, vacation, or retirement, for example, your goal will heavily influence the type of account you choose.

Find Accounts with the Highest APY: Compare the annual percentage yield (APY) of the accounts. Ideally, you will choose the highest available rate. Note, listed APYs usually include the effect of compounding. To achieve the advertised yield, you likely have to leave your money invested for a specified time period outlined in the terms and conditions of the account.

Look for Low Minimum Balance and Deposit Requirements: Confirm if a minimum deposit is required to initially open the account or if you must maintain a specific monthly balance to avoid maintenance fees. Some accounts may also have tiered interest rates based on your balance.

Do Not Incur Unnecessary Charges: There are several fees associated with savings accounts. Many accounts have monthly fees if you do not maintain a certain average daily or monthly balance. Specialized savings accounts like CDs, health savings accounts, and IRAs also have early withdrawal penalties.

Search for Accounts with No Transaction Limits: Savings accounts may have a limit on the number of transfers and withdrawals you’re allowed per month. If you need constant access to your funds, open accounts with unlimited access.

Make Sure the Account Has Mobile Banking Options: Assess the company’s website and mobile app. You’ll want to look for options with an easy-to-use interface that lets you check your balance, transfer money and set up bill pay.