7 Types Of Savings Accounts: Where To Store Your Money

There are many types of savings accounts. While they’re all there for the same purpose — to help you set aside money — some may be a better fit for your financial needs than others. It’s important to determine what your needs are when doing your research on the different types of savings accounts. That way, you can choose the one that best aligns with your goals.

7 Different Types Of Savings Accounts

The following are different types of savings accounts you can choose from, each with its pros and cons.

1. Traditional Savings Account

A traditional savings account is what most people tend to be familiar with, and is usually at a major bank, or your local credit union. Though you may need to open one at a local branch, many financial institutions now offer the option of opening one online.

Opening deposit requirements will vary by financial institution, and these savings accounts may have a minimum balance requirement. If you can’t meet it, you may have to pay a monthly maintenance fee or you won’t earn any interest.

The interest rate (known as annual percentage yield or APY) is generally low with traditional savings accounts, though still typically higher than checking accounts. This type of savings account is best for those who want to have an account at their local branch, and aren’t too concerned about maximizing the amount of interest they earn.

Pros Of Regular Savings Accounts

• Offers FDIC insurance (like other types of deposit accounts)
• Can conduct transactions in person or online
• Offers easy access to your money

Cons Of Regular Savings Accounts

• Interest rates tend to be lower compared to other types of savings accounts
• May need to pay monthly fees depending on balance
• No tax benefits

2. High-Yield Savings Account

A high-yield savings account, or a high-interest savings account, works much like a traditional savings account, except that you’ll earn an APY that is much higher. For example, the national average for traditional savings accounts is 0.35%, whereas many high-interest savings accounts can easily be five to 10 times that amount. Account holders may have to make a minimum deposit, and there may be monthly fees or minimum balance requirements involved, though it’s typically not the case.

In most cases, high-yield saving accounts are available online-only.

High-yield savings accounts are best suited for those who are looking to store the cash for savings or emergencies while maximizing their savings.

Pros Of High-Yield Savings Accounts

• Earn more interest than traditional savings accounts
• Most don’t charge monthly fees
• Relatively easy to open an account

Cons Of High-Yield Savings Accounts

• Usually not available to open in person
• Interest rates can fluctuate
• Can take time to transfer money between accounts

3. Certificate Of Deposit (CD)

A certificate of deposit (CD) is a type of time-bound savings account. When opening the account you’ll make an initial deposit and agree to leave the money in the account for a predetermined amount of time — it can be from a few months to a few years. In the meantime, you’ll receive a guaranteed interest rate for that amount of time.

Once your certificate of deposit matures (the time you agreed to is up), you can withdraw the funds, including the interest earned. However, if you make an early withdrawal, you may have to pay a penalty, which could negate the interest you earn.

These types of accounts are best suited for those looking to set aside an amount of money for a short- or medium-term goal and are fine with not touching this money for a period of time.

Pros Of CDs

• Higher interest rates compared to the first two options
• Predictable returns
• Can choose how long you want your CD for

Cons Of CDs

• Less liquid than traditional and high-yield savings accounts
• May face early withdrawal penalties
• Interest rates may not keep up with inflation

4. Money Market Account

A money market account is similar to a high-yield savings account in that it offers higher interest rates than a traditional savings account. However, you usually have to make a higher minimum deposit, and you may have to meet minimum balance requirements. Otherwise, you could be subject to monthly maintenance fees.

The main point of a money market account is for it to be less accessible than a savings account, but more accessible than a CD. However, you usually won’t be given a debit/ATM card. The only way you can transfer money is by doing so online or in person.

This type of savings account might be best suited for those looking for a way to save money but still be able to be more liquid. There are usually no restrictions on when you can withdraw your money.

Pros Of Money Market Accounts

• FDIC-insured if opening one at a bank or credit union
• Higher interest rates than traditional savings accounts
• Offers more flexibility if you want to make withdrawals easily

Cons Of Money Market Accounts

• May require a higher minimum deposit
• May not be as easily accessible as savings accounts
• May have high minimum balance requirements

5. Cash Management Account

A cash management account is one where you can deposit money to earn interest, but the account is not with a bank. Instead, it's usually with another financial institution like a brokerage. Some may be insured by the FDIC and SIPC, but the rules will vary depending on the financial institution and account.

While they’re not officially banking products, cash management accounts share many of the same features as traditional and high-yield savings accounts. However, you may get a debit card, unlike many savings accounts.

Pros Of Cash Management Accounts

• Many don’t charge fees or require minimum deposit amounts
• Can set up an account easily
• Offers competitive interest rates

Cons Of Cash Management Accounts

• FDIC or SPIC insurance rules may vary depending on how the financial institution handles your money
• May have to pay fees to withdraw money
• May be charged monthly fees

6. Health Savings Account (HSA)

A health savings account (HSA) is one that you can open and contribute to if you have a qualified high deductible health care plan (HDHP). The money you deposit will grow tax free — you may be able to choose your investment, and your deposits are made with pretax dollars, so contributions are generally tax deductible. If you spend or withdraw money for qualified medical expenses, it is also tax free.

Keep in mind that this type of account is best suited for those who want to set aside money for health care expenses. Interest rates will vary, and there may be fees involved. There are also limits as to how much you can contribute each year — check the IRS for updated information.

Pros Of HSAs

• Can save money for health care expenses
• Contributions and withdrawals are generally tax free
• Can claim a deduction on your taxes

Cons Of HSAs

• Need to have HDHP to open and contribute to an account
• There is a limit as to how much you can contribute
• Not all expenses qualify as qualifying health care expenses

7. Individual Retirement Account (IRA)

You may have heard of this retirement savings vehicle called an IRA. You can choose from a Traditional IRA — contributions are pretax — or Roth IRA — contributions are post-tax. You’ll earn an interest rate set by the financial institution and contributions can grow tax free inside the account. If you make a withdrawal, you will be taxed if it’s a Traditional IRA, but generally not taxed if you meet the requirements with a Roth IRA. You can contribute up to a maximum each year as outlined by the IRS.

This account is best suited for those who want a less risk way to invest for retirement.

Pros Of IRAs

• Best for those who want a guaranteed rate of return
• Contributions may be tax deductible
• Withdrawals may be tax-free

Cons Of IRAs

• Not suited for those who want liquid access to their funds
• Rates may be lower than other investment options
• There are limits on how much you can contribute

How To Choose A Savings Account

• Factors to consider when deciding on a savings account include:
• Interest rates (APY)
• Monthly fees
• Minimum deposit requirements
• Minimum balance requirements
• Ease of use
• Withdrawal limits
• Your financial and savings goals

FAQs About Types Of Savings Accounts

Here are some frequently asked questions about different types of savings accounts.

Can I open more than one type of savings account?

Yes, you can open more than one type of savings account, even at the same financial institution, if available.

Which savings account earns the most money?

Since interest rates fluctuate, it’s hard to say definitively which type offers the highest interest rate. If you’re looking for more flexible options, high-yield savings or money market accounts generally earn more than traditional savings accounts, while keeping your money relatively liquid and accessible.

What is the best type of savings account?

The best type of savings account is one that meet your needs and goals to help you in your financial health.

The Bottom Line

Choosing a type of savings account boils down to your preferences and financial goals. Equally as important is tracking where your money is coming and going. To help you on the road to financial wellness, download the Rocket Money^SM app today.