One of the smartest things to do if you have a steady income is to set up a savings account. Having some money stashed away can be rather important when you run into difficulties or have an unexpected cost to cover.
Savings is important even beyond such an emergency fund since it’s a way to store value and pass it onto the next generation, which is what all the work is about, at least in the long run. There are many different types of savings solutions and a question that many people ask often is what type of account is the best to have now. Some people have their favorites, but honestly, the best savings account for you will depend on your personal goals for the money you deposit into it.
So, in this article we’re going to look at six different savings options and choose the best one for you.
Regular Savings Account
A regular savings account or a monthly savings account is the one that most people are familiar with and that suits the needs of most users. It’s used for short-term or middle-term savings and that’s what most people are using their savings for. Thanks to these accounts, you are able to earn interest on the money you’ve deposited into your account. The amount you’ll earn is expressed as APY.
There’s usually a limit as to how many times you can withdraw money from your savings account, otherwise, it would defeat its purpose. In most banks, you can withdraw your money up to 6 times a month.
High Yielding Savings Account
A high-yielding savings account is made to increase the interest you get from your savings. Banks usually advertise such accounts to those who want to get more out of their savings, but it’s also important to keep in mind that these have downsides as well.
For instance, you can’t deposit money to this account directly, it can only be transferred from other types of accounts. In some cases, you can’t withdraw money from this account using an ATM. When opening such an account, you should make sure that the transfers are easy to make online.
Money Market Account
This type of account is the best option for those who want to save but also have access to their savings at all times, so they can withdraw them as often as needed. You’ll also be able to write checks from this account, and there’s no limit as to how many times you can withdraw from it.
At the same time, there’s a higher limit as to how much you need to deposit into this account in order to open it in the first place. There’s also a monthly charge for using the account, which isn’t the case with most savings accounts.
Certificate of Deposit Account
This type of account is made for long-term savings. It’s best suited to those who don’t plan to withdraw money from their savings account for a long time. This account also offers better rates than other accounts on our list.
In most cases, there’s a penalty for withdrawing money from such an account before the deadline you’ve set for yourself. This way you have an incentive to save, but you can still use the money if you need to. The interest rate you decide on when you open the account won’t change over the years.
Cash Management Account
This isn’t really a savings account but it can be used as such. The main purpose of a cash management account is to keep the cash in an account so you can invest it in a brokerage account or a retirement account.
These accounts aren’t always covered by the FDIC insurance since they are not made to save in. They also have lower rates than other accounts we’ve mentioned, other than the regular savings account. Cash management accounts may not allow you to use branch banking, since they are run by brokerage companies and not banks.
Specialty Savings Account
These are the accounts that are made for a particular savings goal. They are therefore best for those who are saving for a particular purpose or with a specific goal in mind. There’s a wide range of options within that. The most common of these are student savings accounts, and kid savings accounts. Others will also have a home down payment account set up as a savings account.
These accounts usually have stricter rules when it comes to withdrawing, since you may be taxed on the amount you’ve withdrawn. The interest rates are also lower. It’s best to use these accounts only if you know what the exact purpose of the funds is going to be and if there’s little chance for an emergency to come up. It’s also useful to have a separate savings account for emergencies and use this one for its main purpose only.
Which One to Use?
There’s no one answer to this question since different users prefer different types of savings. Your savings plans can also change over the years as you earn more and your plans change in the process. When this is the case, you may want to open different savings accounts to accommodate your new needs.
The most important things to consider is what’s the interest you’ll be earning and how easily you can withdraw from your savings account if need be. There’s a balance between these things and finding it will help you choose the account that’s best suited to you.