Savings accounts are one of the most popular ways of stashing your earnings. The first type of investment or just collection of money that comes to one’s mind is a savings account. Not only does a savings account keep your money safe, it also gives you a certain amount of interest per year.
However, since savings accounts do not offer great interest rates, they are not preferred by most people. But, still savings accounts are used by a lot of people. The reasons being they hold money for your short-term goals and allow you to create an emergency fund, which you can break any time just like a piggy bank.
So, let us look at the various types of savings accounts that are offered by banks. These accounts have varied rules and interest rates. Therefore, you must read the terms and conditions before opting for any of these savings accounts.
Basic Savings Account
One of the different types of savings accounts is the fundamental savings account. This type of savings account is the most popular one. It just requires you to park a small deposit in your account and maintain a little daily balance. Since the basic savings account does not ask much from you, it offers minimum benefits with lowest interest rates equal to 1 per cent or a little above.
Money Market Account
Money market accounts have some more requirements as compared to a basic savings account. This means it asks you a little bit higher opening deposit and a higher daily balance. Customers get somewhat higher interest on a money market account than a basic savings account, notwithstanding it is still a minute amount. This means that even though you get better interest rates on a money market account than a basic savings account, you still do not get much extra money at the end of the year.
Money Market Fund
Money market funds are a type of mutual fund that is provided by brokerage firms, like Vanguard and Fidelity. Such types of savings accounts typically have robust minimum opening investment requirements. Although, money market funds are quite safe, yet they have some risk of loss as they do not have any FDIC (Federal Deposit Insurance Corporation) protection.
The best thing about money market funds used to be that (yes, you guessed it right) you got more returns, even though they have a requirement of higher opening balance and more risk. But, in the recent times, money market funds have been paying the same interest rates as most of the basic savings accounts. So, this may be not the best time to go for a money market fund, when you are not getting anything more, despite of the risk and hefty opening balance.
Certificate of deposit
Certificate of Deposits (CDs) come with less liquidity as compared to basic savings accounts and money market accounts, since you must take it for a minimum of one year term so as to thrash the interest rates on savings accounts.
Therefore, you cannot take out money before the term of your CD and if you go against it and pull out money before the term expires, you need to pay a fee that is equal to the interest rate of a few months. These types of savings accounts offer better interest rates than basic savings accounts. However, you should only go for a CD, when you do not need your money earlier than your CD tenure.
Online savings account
Online savings account is one of the best types of savings accounts, as it can considerably increase your nest egg. Online banks offer better interest rates than basic savings accounts, since their cost of business operation is lower.
You can do a quick online research to see which online banks offer how much interest. Some of these banks offer up to 1 per cent interest, without any obligation to put a minimum balance in your account. This means you can earn $10 on $1,000 after a year.
While, most of the online banks are insured by the FDIC, you still must check before opting for one. Plus, online banks offer many other benefits to customers, such as allowing you to outline your goals for your savings. You can mark down parts of your savings for different purposes, like buying a car, going on a vacation, etc.
With this, the list of different types of savings accounts comes to an end. You can go for any of these savings accounts depending on your needs and the interest rates offered. Make sure that you go through the nitty-gritty of the savings account you wish to plunge into.