5 Types Of Savings Accounts Explained

Cash savings may not make for the greatest return on investment at the present time. What with still relatively low interest rates along with rising inflation keeping real returns low or even negative. But everybody should hold some of their assets as cash as it offers security and accessibility. And as we’ll show by not relying on your standard bank you could be getting a lot better return on your cash with different types of savings accounts.

There are lots of different types of savings accounts available that each have their advantages and disadvantages. Whatever your savings goals there is a savings account suited to you and your needs. In this post we will list the different types of savings accounts and who each is best suited for. So you can choose the best account type for your circumstances and make the most of your money.

How Do Savings Accounts Work?

Firstly let’s take a quick look at what they are and how do savings accounts work. When you deposit money into a savings account with a bank you will receive an interest payment in return. Keeping money in a savings account also gives security and peace of mind.

Interest on savings is often listed as APY, which stands for Annual Percentage Yield. The interest rates available vary by a number of factors including the provider and account type. Remember the higher the APY the more you will earn on your money.

Everybody has different needs and savings goals. These could include building up an emergency fund to cover future expenses to saving for a house. There are several different types of savings accounts that cater to these different savings goals which we will explain below.

All savings accounts pay a type of interest called compound interest. We highly recommend you read our blog post demonstrating how the power of compound interest works to grow your money.

Types of savings accounts explained = how do savings accounts work?
Types of savings accounts explained = how do savings accounts work?
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What Are The Different Types Of Savings Accounts?

Don’t forget it’s important to review your finances regularly to ensure you are getting the best rate on your savings. view our list of the best online savings accounts interest rates. These feature a variety of different types of savings accounts.

This blog posts covers the reasons why it’s important to switch your savings account.

Regular Savings Account

A regular savings account is the standard savings account offered by most traditional banks. These are the most common type usually offering easy access to your money and low minimum deposits.

However these types of accounts tend to have very low interest rates compared to other savings products. Another thing to be aware of is if the accounts also have maintenance or withdrawal fees. These fees may cancel out any interest earned.

High Yield Accounts

As the name suggests high yielding accounts usually offer much higher interest rates than most standard savings accounts.

Accounts offering higher interest rates are usually operated by online banks rather than traditional banks. As these accounts are mostly online there are usually lower or no fees for managing or withdrawing your money.

A good example of this is the Quontic Bank High Yield Savings account which has no monthly service fees. It currently offers rates of 0.55% APY which is 15x the national average. Alternatively Axos Bank pays up to 0.61% APY on balances below $24,999.99 but has a higher minimum opening deposit.

For those that are happy managing their money online and not in branch, they can provide much better returns on your money.

Money Market Accounts

Money market accounts combine some elements of savings accounts and checking accounts. They usually offer more benefits than a regular savings account but less flexibility than a standard checking account.

A money market account usually has higher interest rates than regular savings accounts, giving a better return on your cash. They also often come with debit cards and check writing capabilities.

In return for these benefits they may have tighter restrictions imposed on them. This can include maintaining a high minimum balance. Fees may apply if you don’t meet the minimum requirements.

Many online banks offer fee free money market accounts with better rates of interest such as Quontic Bank paying up to 0.60% APY.

Types of savings accounts
Types of savings accounts

Certificate Of Deposit (CD)

Certificates of deposit are savings accounts that have a fixed duration such as 3 month, 6 months, 1 year etc. They can be found at most traditional and online banks.

The advantage to these accounts is that savers usually receive a better interest rate for locking their money away for a fixed term. Generally the longer the time period saved over the higher the interest rate, although these can vary between providers. At the end of the fixed period the money can either be withdrawn or rolled over into a new CD.

The disadvantage is that any early withdrawals will incur penalty fees or loss of interest. So these accounts should only be used by those that are comfortable locking money away for a fixed term. Although there are some penalty free CD accounts but these will have lower interest rates.

These accounts can work both ways. If you fix for a long duration and interest rates drop, you will continue to receive a higher rate. However if you fix for a long period and interest rates rise then you could miss out on the increase. CDs are ideal for those with longer term savings goals that are unlikely to need access in the short term.

You could earn up to 1.2% APY with a Quontic Bank CD account.

High Yielding Checking Accounts

Some checking accounts offer interest with some of these offering higher yields than traditional savings accounts and so could be used to earn a better return on your savings.

The disadvantage to using checking accounts for savings is that there are usually many more requirements and limitations. For instance, the balance you can earn interest on may be capped. Additionally there may be minimum monthly pay in or spending requirements you must meet to receive interest.

Some of the top interest paying checking accounts are Axos and Quontic, each paying up to 1% APY. Then there is Aspiration that pays up to a huge 3% (or 5% for premium) on the first $10,000. Each bank has it’s own requirements that must be met to receive these rates.

Other Types Of Savings Accounts

There are several other more specialist types of savings accounts and products available. These are aimed at those with a particular savings goal such as saving for children, education or Christmas savings clubs.

Savings accounts explained
Savings accounts explained
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Savings Accounts Explained Conclusion

Savings accounts are pretty simple products – you deposit money with a bank and in return receive an interest payment.

There are several different types of savings accounts to choose from. These include; standard savings accounts, high yield accounts, money market accounts, CDs and even high interest checking accounts. Each of these has it’s own pros and cons.

Which savings account types you use depends on what your goals are. Remember you are not restricted to one single savings product. Most people will find it beneficial to open different savings accounts, possibly with different providers.

For instance you may require the convenience of keeping some cash in a high yield account for easy access. Any extra cash that is not required in the short term could be deposited into a CD account for a fixed period to earn a better rate of return.

Many online banks can offer much better rates and products than the traditional bricks and mortar banks. Some of the top savings account providers include; Axos, Quontic, Aspiration and CIT Bank.

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