I think most of us are pretty certain about the importance of saving money, but not all of us are aware of the best ways to do that. Since there are several different types of bank accounts, it can be difficult to figure out which one best suits your needs.
Well, we’re going to help you narrow it down! For starters, there are 4 types of savings accounts that may fit the bill, including checking accounts, savings accounts, certificates of deposits (CDs), and money market accounts.
Each of these accounts typically comes with FDIC insurance on deposits up to $250,000. They can all give you a safe place to stash your short-term savings, but each one is unique so you should choose the one that fits your lifestyle, savings style, and personal goals.
Here are the 4 different types of savings accounts you can choose from:
1. Checking Account
A checking account is the best place to store your money if you wish to access it frequently and easily. You can write checks against your balance to pay for goods and services or make use of a debit card as well. Most banks also offer online account management services now, so you can pay for bills or transfer money right from your fingertips.
There are some very competitive offers for checking accounts, so make sure to shop around to get the lowest fees. They also have a typically low minimum balance requirement, as well as a broad network of ATMs for your convenience.
Convinced yet? Before you sign up of a checking account, you should be aware of the biggest disadvantage to them: low-interest rates on your deposits. So, if you’re looking for an account that will help you earn interest and grow your savings over time, this might not be the right choice for you.
2. Savings Account
Savings accounts work in a similar manner to checking accounts, the only major difference being that they do not offer the checking component. However, it is still pretty easy to access the funds in a savings account. You can do so through an online account management system, at the bank’s physical location, or at an ATM. You will also have a debit card, which you can use to make purchases.
Savings accounts usually come with pretty low fees and minimum deposit requirements. While they make it easy as possible to access your money, federal law limits you to six withdrawals or transfers per month, unlike a checking account. Nevertheless, savings accounts offer higher interest rates than checking accounts – especially if it is an online account. This makes it the best choice for someone looking to grow their savings over time.
3. Certificate of Deposit (CD)
Unlike savings or checking accounts, where access to your money is easily granted, a CD ties up your money for a pre-specified period of time. This could be anywhere from 3 months to 10 years, during which time you will earn a fixed rate of return on your deposit. You can choose the length of time, but the longer the lock-in period, the higher the rate of return.
CDs typically offer the highest rates of interest in the market compared to almost any other type of low investment or savings accounts. But they also come with some barriers of entry as most banks require a minimum deposit of $1000 to open a CD. Additionally, while it isn’t impossible to access your money during the lock-in period, doing so would mean you have to pay a penalty (although you can sometimes borrow against the money using a CD loan).
4. Money Market Account
Money market accounts are like a combination of the other savings accounts we discussed above. Most banks require a minimum deposit of $1000 to open a money market account, but they also offer interest rates that are higher than your traditional checking or savings accounts. However, unlike CDs, access to your money isn’t restricted.
Money market accounts offer checks and/or debit cards which are hassle-free ways to use your money. You can certainly withdraw your money in an emergency, but federal regulations limit your ability to draw cash to six times per month, to prevent too many “convenience withdrawals”. Therefore, when signing up for a money market accounts, make sure to determine how often you can access your account, and whether there are any fees involved while doing so.