5 Types of Savings Accounts to Help You Reach Your Savings Goals

When it comes to savings accounts, you’ve got lots of options. And depending on your financial goals, such as saving up for a vacation or setting aside money for a rainy day, those options vary. 

Here are five different types of savings accounts and who they are best suited for.

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1. High-Yield Savings Accounts 

High-yield savings accounts (HYSAs) pay you a higher-than-average annual percentage yield (APY) while also allowing you to withdraw your money whenever you like.

This gives you the most bang for your (literal) buck when it comes to liquidity and interest-earning potential. 

For example, the SoFi Checking and Savings Account earns up to 4.00% APY with direct deposit or $5,000 or more in qualifying deposits during the 30-day evaluation period, which is much higher than the national average of 0.46% on regular savings accounts!

Pros

• High interest rates: HYSAs offer higher interest rates than other savings products. 
• Lower risk and higher liquidity: HYSAs are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), which protects you in the unlikely event of a bank failure. 
•  Little-to-no fees: HYSAs are usually free and require very little money to establish an account. They also typically do not have minimum balance requirements.

Cons

• Harder to access: HYSAs are mainly offered by online banks and limited brick-and-mortar banks. This can be a challenge if you need your funds quickly and don’t have a bank you can walk into. You also may not have easy access to an in-network ATM.
• Possible withdrawal limitations: Some banks may limit your ability to withdraw funds to a certain number of transactions.
• Interest rates can change: The rates on HYSAs tend to be variable, meaning they fluctuate depending on the current interest rate environment and the market. 

Best suited for 

Honestly, everyone can benefit from a HYSA. They are a great place to park your emergency fund or even earn interest on your shorter-term savings goals. 

COMPARE: Best High-Yield Savings Accounts

2. Money Market Accounts

Money market accounts (MMAs) are checking accounts that function similarly to savings accounts. But because they are checking account products, they may offer a debit card and check-writing capabilities. 

However, they offer higher rates, usually following a tiered-rate structure (meaning the more you deposit, the more you earn).

Pros

• Good interest rates: MMAs offer better rates than typical checking accounts and even some savings accounts. 
• Accounts are insured: MMAs are also eligible for FDIC/NCUA insurance since they are deposit accounts.
• Allow for easier access: Because they are checking accounts with the option for debit cards or checks, this grants you easier access to your funds in case of an emergency. 

Cons

• Minimum balance requirements: In most cases, banks require higher balances to open the account, earn interest, and avoid fees.
• Lower rates than other products: HYSAs or CDs may offer higher rates.
• Limited transactions: Typically, MMAs limit the number of transfers or withdraws to six a month, which may exclude electronic transfers depending on the institution. 

Best suited for 

MMAs are best if you have a lot of money to take advantage of the top-tier rates (and meet the balance requirements), but also want the ability to occasionally write checks for large purchases. 

READ MORE: Money Market vs. Savings: Which Account Is Best for You?

3. Certificates of Deposits 

Certificates of deposits (CDs) are term-based deposit accounts that pay a fixed interest rate. CD rates are typically higher than rates you will get on savings accounts.

Pros

• High rates: Because they are term-fixed, CDs have among the highest rates when compared to other savings accounts and MMAs. 
• Returns are guaranteed: The rates are fixed, and you are guaranteed the interest payments throughout the term of the CD.
• Safe/low risk: CDs are insured through the FDIC/NCUA.

Cons

• Limited liquidity: CDs are less liquid than other accounts like HYSAs and MMAs, making it harder to access the money if you need it.
• Early withdrawal penalties: If you need to access your funds before the term is over, you will likely have to pay a penalty or forfeit some interest.
• Interest rate risk: If interest rates are in a rising climate, you may be locked into a CD earning a lower rate.

Best suited for

If you already have an established emergency fund and are looking for a different savings product for your extra cash, CDs could be for you. 

Additionally, if you are interested in a more old-school savings strategy, try your hand at building a CD ladder. 

READ MORE: Are CDs Worth It?

4. Cash Management Accounts

CMAs are a special account that combines features of checking, savings, and investment accounts. They are non-bank products and are offered by brokerage firms or robo-advisors, such as Webull.

CMAs offer the blend of liquidity and accessibility of a checking account, while also providing better interest rates than savings accounts with integrated investment services. 

Pros

• Higher interest rates: The blend of accounts makes rates higher than standard bank accounts. 
• Federally insured: These accounts use cash sweeps through third-party banking partners, therefore allowing you access to FDIC insurance.

Cons

• Fees and minimum balances: CMAs are special products with unique features and therefore likely have fees or balance thresholds.
• Limited to online only: CMAs also predominately offered by online-only brokerages and robo-advisors, making in-person service and access impossible. 

Best suited for

If you have a lot of cash on hand — specifically, more than the $250,000 FDIC insurability limit — you can benefit from the sweep features of a cash management account. 

5. Custodial Savings Accounts 

Custodial savings accounts are great for jump-starting your child's future. 

These accounts can be opened at a bank or brokerage and are opened in the minor's name with the parent/guardian controlling the funds until the child is an adult. 

Pros

• Control/flexibility: The parent controls the funds until the child is of age, making sure they are used appropriately. Anyone can also contribute to the account, not just a parent/guardian.
• Learning: Provides an opportunity to teach your child about saving and financial responsibility.

Cons

• Potential impacts on student financial aid: Because the funds belong to the child, it can hurt their financial aid eligibility for college.
• Limited investment options: Some accounts may offer fewer investment choices. 

Best suited for

Parents trying to save for their child’s future. 

FAQs

What is the best type of savings account?

High-yield savings accounts offer an APY that is higher than other savings accounts, while also giving you unrestricted access to your funds. This makes them very popular.

How many savings accounts should I have?

You should shoot to have at least one emergency account comprising three to six months of expenses. Beyond that, you can also open individual sinking funds depending on your goals. 

TL;DR: What Types of Savings Accounts Should I Have?

You have many savings options. 

If you want to earn the most interest, look into HYSAs, MMAs, or CDs. If you need a unique blend of product types offering you more deposit insurance, look into CMAs. 

Lastly, custodial accounts can be used to jumpstart your child’s savings goals. 

For more advice on how to best manage your finances, check out these episodes of the Erika Taught Me podcast:

• How To Budget For Beginners
• The 7 Baby Steps You NEED To Get To Financial Freedom
• 10 Steps Towards Financial Wholeness

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