Savings accounts are a great way to protect your money and earn a little interest over time, but there are many different kinds to choose from. Where do you start?

Think about your needs

The first thing you should consider are what you want the savings for and how soon you may need to access the money. Some savings may be for retirement a few decades down the road, while other savings may just be for holiday shopping at the end of the year. Your goals are going to help you decide which savings account will work best for you.

Most savings accounts offer a very small interest return rate (.2% per year in some cases) while other savings are set up for long term savings and typically offer higher rates the longer you leave the money in the bank. If the savings account is for an emergency fund or for use within the year a standard account is probably fine, while saving for a new car might allow you to find one with a 3 year limit and a higher interest rate.

Consider the initial deposit

Many new accounts will require you to deposit a specific amount to open the account. That could range from $25 up to $10,000. What can you afford to put down especially if you are starting off with a small amount of money? It can help you decide which type of account is best for you.

Review access restrictions

Every bank and account type will have different rules for how and when you can access your money. Some limit how many times you can withdraw funds in a month without incurring more fees. Others might have you leave your money in the account for a few years before it can be withdrawn. You’ll want to make sure that if you put your money in, you’ll be able to take it out when it’s needed.

Account Fees  

Some savings accounts have fees attached. There might be an open account fee, a yearly fee, balance transfer fees, or other hidden costs. Be sure to understand what types of expenses a new account may accrue. There might also be a penalty fee if you remove your cash early or close the account.

Shop around

While it might be convenient to keep your money at the closest bank to your home, it might be in your best interest to shop around to other banks and credit unions to see if they can provide you better terms for your savings. Some might make a match to your initial deposit or offer rewards for maintaining a specific balance in the account. It’s worth it to check out all of your options.

Types of Savings Accounts

Traditional or Standard accounts

These accounts are offered by most banks, have limited restrictions and features and typically offer a very low rate of interest. These are good as starter accounts, especially for kids, those just starting on their savings journey or to hold an emergency fund or money that you will need to access within the next few months. It’s basically one step up from keeping your money under the mattress or in a home safe and offers FDIC insurance protection if the money is stolen or damaged.

Higher Interest Savings Accounts

Also known as high-yield savings accounts these typically offer a higher interest rate than a traditional account. This can be a great option if you don’t need access to your money immediately and want a greater return on your investment. Also unlike investment accounts these types of savings accounts are more stable and are often FDIC insured to offer greater peace of mind. Watch out for minimum balance requirements and withdrawal terms.

Certificate of Deposit

A CD is a savings account where you basically purchase a certificate and agree to keep your money with a bank for a certain amount of time for a higher rate of return. If you take money out before the time is up there is typically a penalty, and these types of accounts while insured don’t offer the option for check writing or debit cards.

Money Market Accounts

A money market account or money market deposit account (MMDA) is a savings account that offers a higher interest rate than traditional accounts typically with larger restrictions like maintaining a high balance in the account. They also often have management fees along with other features that aren’t found in other types of accounts, for instance many offer check writing and debit card options. You get the benefit of a higher interest rate with any-time access to your money. These types of accounts are good for your 6-12 month living expenses savings.

Mutual Funds

Mutual Funds allow you to pool your money with others through a brokerage firm or mutual fund company which offer investment financing to small business and construction, etc. The brokerage firm will invest your money into stocks and bonds which offer much higher rates of return (known as dividends rather than interest) than savings accounts. However these accounts are not FDIC- or NCUA-insured. Banks may also offer mutual funds, but they aren’t insured, either. However, because they invest in safe short-term vehicles such as CDs, government securities, and bonds, they are considered to be very low risk. You can sell your fund shares once per day if you need to take the cash out. These funds require a higher initial investment than most savings accounts, but have a much greater rate of return.

Savings Bonds

Both Series EE and Series I savings bonds are issued by the U.S. Department of the Treasury and come with a set interest rate for the life of the bond. Savings bonds are considered a safe, longer-term investment, and while the money in your bond is subject to federal taxes, it is not subject to state or local taxes when you cash it in. In fact, you may also get a federal tax deduction if you use your bond to pay for higher education at an eligible college or university. You may also incur a penalty if you withdraw money before the term of the bond is reached.

Online Savings Accounts

Traditional banks aren’t the only place to find savings options. Online banking offers an easy and accessible way to manage your money from anywhere in the world. These accounts are often FDIC member banks and frequently offer higher interest rates as well. There are some restrictions so make sure you understand any possible penalties. It’s also important to keep your account username and password safe.

Specialty Savings Accounts for School

These types of accounts include 529 education savings accounts (ESAs) or Coverdell accounts which offer tax savings on your growth or initial investments. There are also Custodial Accounts which are taxed at a child rate and transfer to the child once they reach 18 years old. You might also find a prepaid tuition plan at some universities, so if you know for sure that your child will be attending a particular school you may be able to pre-pay their tuition.

Retirement Savings

There are a number of different options for retirement savings. Outside of an employer 401K plan you can set up your own solo 401K, Roth or Roth IRA retirement accounts. If you work for the government you could also look into the Thrift Savings Plan (TSP).

Whichever type of savings you decide to choose, know that you are making a good investment for your future. Savings can give you a safety net for life’s uncertainties and can increase your peace of mind. If you can save enough it will also keep you from working longer into retirement, avoid costly loans and credit card debt, and help you feel a measure of success.

As always Family Financial Education Foundation is here to help you navigate through your financial choices and make a plan for your future. Feel free to contact one of our counselors today for more information on your particular financial situation.