Getting into the habit of saving money is never easy. But with the current economic climate, there’s never been a more important time to get to grips with saving.
Whether you’re saving for the long-term, or just want to save some cash for emergencies, there are plenty of accounts in the market that will suit your needs.
We take a look at the different types of savings accounts in the US. Helping you to understand which type of account can help you reach those big financial goals, fast.
The good news is that savings accounts are generally available to everyone. So as you’re reading through, have a think about what you’re planning on using the account for, and start estimating exactly how much you’re going to aim to save.
Benefits Of Savings Accounts
There are many benefits to opening a savings account.
For one, it’s a safe way to keep large sums of money. All balances held in a savings account in the US are protected by the Federal Deposit Insurance Company (FDIC). If your chosen financial institution goes bust, this guarantees your money is safe up to the value of $250,000.
With a savings account you also have the potential to earn interest. This means the bank will pay you an amount based on the balance in your account. For example, if you have $1,000 saved and you earn 1% interest annually, at the end of the first year you’ll have earned $10 in interest.
Savings accounts can also be useful because they keep some distance between the money you can spend now and the money you want to spend later. You are also only able to withdraw money from the account six times in one month, which can act as a good deterrent for anyone tempted to dip into their savings.
You can also normally open a savings account with a small sum of money and build up at your own speed. This is great if you’re new to saving. You can choose an account with no minimum balance requirement and make deposits whenever it suits you. You could also set up automatic payments as soon as you’ve been paid so you get into a good habit of paying yourself first.
Let’s take a look at the different types of savings accounts in the US.
1. Deposit Savings Account
These are considered the most basic form of savings accounts. You deposit money into this account, from as little as $10, and throughout the year you’ll earn interest on the main balance.
You can withdraw your money at any time, without any notice. However, there are restrictions on how many times you can transfer money to another account or another person.
2. High Yield Savings Account
A High Yield is a form of savings account in the US that offers higher interest rates than standard savings accounts. A standard savings account might typically offer a 0.01% interest rate. Whereas a high yield savings account could be up to 2%.
Because these accounts generally have higher interest rates, they’re attractive to anyone looking to save for big ticket items, as the high yield will speed up the growth of your money.
These accounts offer higher interest rates than standard accounts because they require the saver to make a larger initial deposit, and offer the saver limited access to the account.
In line with federal law, you are only permitted six withdrawals, or transfers, a month from this type of savings account.
When looking into high yield accounts, you should shop around to get the best deal and maximise your savings. Don’t just look for the accounts with the highest interest rates, but also take into consideration if you’ll have to pay any fees to the bank each month.
3. Money Market Account
A Money Market Account is similar to a basic bank account – however, they come with a few extra features not normally available with other types of accounts.
For one, you have easier access to your cash. Many MMA Accounts include check writing options, and you might even be able to spend money from your savings account on a debit card. It’s for this reason that anyone looking to start an emergency fund, might opt to open a Money Market Account.
They generally come with higher interest rates than a regular savings account, although you are normally required to keep more money in them.
When opening an MMA account, you’ll be required to deposit a set amount of money. In most cases, you will need to keep your account balance above a certain level. Typically the limit is $1,000. If the balance dips below this level then you’ll be charged a fee.
4. Jumbo Savings Account
Jumbo accounts have been created for anyone who wants to add a large amount of money straight into savings. The typical deposit needed to access a jumbo account is $100,000 and in return savers are given special interest rates and rewards.
5. Certificates Of Deposits Account
Certificates of deposits, or CDs as they are sometimes called, are a type of savings account that you deposit money into, with the knowledge that you won’t need to access it again for a predetermined amount of time. The set amount of time could range from six months, to over five years. In return for this, you’ll be rewarded with a higher interest rate.
The longer the term of your CD account, the more interest you’re likely to earn. However, if you choose to withdraw funds before the agreed term is over, you’ll be subject to a penalty fee.
The CD account is therefore great if you’re looking for an account to keep hold of cash that you won’t need to access for a while. They often pay higher interest rates than other savings, or MMA accounts, which can help grow your savings.
The penalty fee, interest rate given, and other terms can vary hugely depending which bank you apply with. It is for this reason that it’s advisable to shop around for the deal that suits you best, and is likely to offer the highest returns.
Here we’ve looked at five different types of savings accounts. We hope this has helped you compare the different types of accounts, letting you evaluate which one can help you maximise your savings the most.
You might also consider opening a range of accounts. This can be a great way of saving money for different goals you want to achieve. For example, you could open one saving account to be used for an emergency fund. One to save for a big holiday. And another to save up for a house deposit.
If you want to compare each of these accounts in more detail, then head to the Save Money tab on Emma. From there you can compare a variety of different savings accounts in only a few minutes!
Emma is a money management app that connects all your bank accounts to track your monthly spending and subscriptions. Emma will help you visualise and take control of your finances. Make sure you aren’t overspending, and show you practical steps to start budgeting effectively.