Different Types of Savings Accounts
Which savings account is best? Keep your cash in a savings account for security, easy access, and steady growth. But which savings account is best?
Choosing the best savings account might be confusing with so many options. We’ll break it down so you can get started saving for the things that matter most.
Traditional Savings Account
Traditional or regular savings accounts are basic savings accounts with a low-interest rate and low minimum deposit. They are easy to open, and cash can be readily accessed, making it an excellent place for an emergency savings account. When opening a savings account, check to see if there are any minimum balance requirements or monthly maintenance fees.
Joint Savings Accounts
A joint savings account is an account that two or more people share. Couples often have joint accounts for maintaining household expenses. These accounts are good if you’re equally saving towards a goal. Joint savings accounts may offer benefits that regular savings don’t. It might be easy to meet minimum balance requirements with two people contributing. Some joint accounts offer higher interest rates and waived maintenance fees, but you may need to meet minimum balance requirements and have withdrawal limits. Shared account holders will have access to all funds and will be able to talk to a financial representative without the other account holder’s consent. Because of this, it’s important to choose joint account holders carefully.
High Yield Savings Account
High-yield accounts earn more interest than a regular saving account or a money market account. However, these accounts often have balance requirements, withdrawal limits, and minimum deposit requirements. Better for long-term savings, high-yield accounts are ideal for retirement savings.
Money Market Savings Accounts
The best money market savings accounts will pay you a high annual percentage yield (APY) and keep fees and requirements to a minimum. Money market savings accounts will allow for a certain number of withdrawals and transfers. Check your financial institution for its requirements and ask about withdrawal options and any transaction fees before opening an account.
Regular Savings vs. Money Market vs. High Yield Savings
|Regular Savings||Money Market Savings||High Yield Savings|
|Earns High Interest||No||Yes||Yes|
|NCUA & FDIC Insured||Yes||Yes||Yes|
|ATM Access||Yes||With limits||With limits|
|Check Writing||No||With limits||No|
|Debit Card Access||Yes||With limits||No|
|Maintain a Balance||No||Yes||Yes|
Club accounts are the ideal savings accounts for short-term goals. Also known as vacation or holiday accounts, these dedicated accounts are a helpful way to save for vacation, taxes, or holiday spending. You can set up automatic deposits or transfers from a checking account for effortless savings. Understand that account holders can withdraw from the account only at specified times, near tax season or holiday times. It is not a good idea to use a club account as an emergency fund due to restrictions on when a person can withdraw funds.
Reward Savings accounts
Reward savings accounts are designed to increase your savings and offer incentives. Each financial institution will have its special incentives. Some reward savings accounts come with an ATM card but not a debit card. A reward savings account may include:
- Premium rates for higher balances
- Annual savings bonuses
- Discounts on other products such as safety deposit boxes
Reward savings accounts have eligibility requirements such as higher minimum deposits and a monthly minimum balance to avoid fees. You may only be allowed a certain number of withdrawals. Account holders can tie their reward savings account to a reward checking account for additional privileges.
Youth and Teen Savings Accounts
Teach youngsters the value of a dollar and the power of saving early. Known as a youth, teen, or custodial account, any account for a child under 18 will need a parent or guardian to open. The parent will manage the account, and once the child turns 18, the account reverts to the child, and they can do what they want with the money. Know that custodial accounts can have an impact on college financial aid. If the account balance is significant enough, it could impact federal financial aid decisions.
College Savings Accounts
It’s a smart move to plan for education as early as possible. Higher education costs grow year over year, but given an 18-year head start, you may be able to pay for the entire four years and beyond through plans, investments, or cash. Credit unions have several college saving options. Two of the most popular are the 529 Plan and the Coverdell.
529 College Savings Plan
529 Plans have been around for years and are popular with families. They’re easy to set up, with different contribution plans available. For example, several people can contribute to one plan or set up multiple 529 plan accounts for the same child. The 529 plan has federal tax advantages and falls into two categories: college savings and prepaid tuition plans. Your financial representative can walk you through all the requirements and differences. Each has risks and benefits; it’s essential to know all the options and drawbacks.
Coverdell Education Savings Account
Coverdell ESA is another college savings investment fund. Your child is the beneficiary of the Coverdell ESA, and the parent or guardian is the account owner. Like the 529 plan, funds must be used to cover a child’s educational expenses, but the
child will not have control of the funds. Funds are tax-free, with a limit of $2,000 a year for each child. This is an investment account similar to the 529 Plan, and rules and requirements apply. A financial representative can help you make the right
choice for any college savings plan.
Further Resources on the Different Types of Savings Accounts
Here are some additional resources on the different types of savings accounts:
- Hands on Banking: Hands on Banking's website offers this article about the different types of savings accounts offered by credit unions.
- National Credit Union Administration (NCUA): NCUA's website provides information about the various types of savings accounts offered by credit unions and tips for choosing the right account.
- Bankrate: Bankrate offers an article about the different types of savings accounts.
Start a Savings Account with a Credit Union
Opening a savings account can help you build a healthy financial future. Whether you want to prepare for the holidays, save for college, or create an emergency account, a savings account is a secure place to hold your funds. Become a credit union member and build your savings with a trusted financial partner.