5 Types of Savings Accounts

Money has always been a critical issue to the commons. Earlier, people used to preserve their money in underground treasure and all, but nowadays people know that investment is the best preservation. 

 

Though there exist several investment options such as cryptocurrency, stocks, and shares, a common man is always afraid of risks. There come savings accounts to rescue. Savings accounts at no risk factor offer interest to your money and help it to grow. In this blog, we will read about savings accounts and the types of savings accounts.

 

 

What is a savings account?

 

A saving account is defined as an interest-bearing deposit account. This kind of account can be aided by a bank or some financial institutions. Unlike other accounts, this type of account is not highly beneficial or profitable. It pays a modest interest rate to the users but is a great option to serve short term cash needs. 

 

The safety and reliability offered by saving accounts make it a super choice to park your money. In the case of an emergency or short-term case, saving accounts allow you to access your funds easily. 

 

You can withdraw any amount of money from your account plus it provides ease and liquidity. One thing to be noted here, the interest earned on a savings account is a part of taxable income.

 

Working of a Savings Account

 

Savings accounts can be opened in any bank or financial institution. The savings accounts are the important sources of funds which are used to serve loans. This is one of the major reasons why financial organizations favor savings accounts that much. 

 

You can easily open a savings account with minimal requirements. The interest rates provided by savings accounts vary from bank to bank and union to union. Few savings accounts need a minimum balance to avoid extra charges, while others have no such obligation. 

 

Whenever you have to deposit money in your account you can simply deposit it to your bank virtually or traditionally. Unless you need the amount, the banks use this money to issue loans. 

 

The banks receive high interest on loans, it utilizes some percentage of those loan interests received to return some interests to the savings account holders. Few financial organizations set up the withdrawing limits to their users. For individuals seeking to enhance their financial portfolio by exploring more options, conducting an in-depth savings account analysis can provide valuable insights into how different banks' offerings stack up against each other. By comparing across multiple banks, you're empowered with the knowledge to make an informed decision best suited to your saving goals.

 

(Check out - What is Microfinance?)

 

Types of Savings Account

 

Based on the types and the purpose served, types of savings accounts are classified into 5 major categories. A brief description of all five terms is given below. Recently, the government of India has made changes in policies for Indian banks.

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Types of Savings Accounts

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 Regular Savings Account

 

Regular savings account, also called a traditional savings account, is a typical savings account. It can be opened at traditional banks or credit unions. Many banks assist you in opening a regular savings account. 

 

The regular savings accounts offer lower rates than other types of savings’ accounts. Excluding ATM withdrawals, traditional saving accounts allow the users to make up to six withdrawals without incurring a penalty. You can easily manage your savings account via ATM, net banking or branch.

 

Regular savings account is the best option for both short- and long-term investment. Those people who are not much interested in best interest rates should go for it.

 

Advantages

 

1. Easy to open.

2. Easy to maintain.

3. Provides interest and helps your money to grow.

4. Money can be deposited online as well as at branches.

 

Disadvantages

 

1. Interest rate is quite low, sometimes even canceled out by monthly maintenance fees.

2. Additional charges applied when the limit of withdrawal is crossed.

3. Charges are applied when an ATM of some other bank is used.

 

High-yielding Savings Account

 

As the name suggests, a high-yielding savings account provides high yielding value. Their rate of annual percentage yield is higher than other types. Online banks offer high-yield savings accounts to attract more customers from regular or traditional savings accounts. 

 

Like traditional savings accounts, high-yield savings accounts are also FDIC or NCUA insured. Their maintenance is also lower than traditional savings accounts. And people who want to gain more competitive profits on savings should consider this type as a choice.

 

Advantages

 

1. Higher interest rate than traditional savings accounts.

2. Lower minimum deposit requirements to open a bank account.

3. Online deposits accepted, thus less hassle.

 

Disadvantages

 

1. You can’t access the branch for depositing your amount, only an online method for depositing the amount is employed.

2. Process of transferring money from online to show up in account can take a few days to process.

3. While some banks support ATMs in such account’s others don’t.

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Money Market Accounts

 

Money market accounts are the combination of a regular savings account and a checking account. These accounts are available at both traditional and online banks. You can access the account via cheque, cards and ATMs. 

 

Interest rates are far better than traditional savings accounts. MMSAs or money market savings accounts are a considerable option for the people who want to earn interest on savings as well as more accessibilities on their savings.

 

The rules and regulations of MMSAs are quite similar to high-yield savings accounts. Bank has the right to impose a penalty after you exceed the limited withdrawal amount. 

 

Advantages

 

1. Money market accounts provide higher rates on savings.

2. You are free to use checks, debits or ATMs to access your account.

3. This type of accounts can be opened at traditional as well as online banks.

 

Disadvantages

 

1. Opening charges are higher.

2. Interest rates are tiered sometimes.

3. Monthly charges.

 

 

Certificate of Deposit Account

 

CDs or Certificates of Deposit Accounts are time deposits. In simple words, you have to leave your money for a fixed period of time. The time periods allow your CDs to mature, after that you can withdraw your savings or roll it into a new CD. CDs can be accessed in both ways traditionally and virtually. 

 

The fixed duration can vary from 30 days to 60 months. Longer the terms, higher the rates. You can consider CD only when you don’t need the amount immediately, as banks charge a pretty early withdrawal penalty. If you want to invest your money safely and don’t need it for the coming days, CDs could serve as a better option to you.

 

Advantages

 

1. CDs provide above-average interest rates.

2. It is a great option for people who have long-term goals.

3. No monthly maintenance fees involved.

4. Lower initial deposit requirement.

 

Disadvantages

 

1. If money is withdrawn before the fixed date, it can cause a high penalty.

2. Traditional banks offer lower interest rates than online banks.

3. Fixing the amount in CDs makes it less liquid in nature.

 

Special Savings Account

 

Special savings account tailors the particular needs of the users. It is designed as per the specific goals.

 

Examples

 

1. Custodial savings accounts

2. Student savings accounts

3. Kids savings accounts

4. Health savings accounts

5. Home down payment savings accounts

 

Users can access these plans and accounts at banks, unions, brokerages and investment companies.

 

Advantages

 

1. Serve a variety of financial goals.

2. Help to grow your money.

 

Disadvantages

 

1. Different accounts have different rules and regulations.

 

There is another kind of account called Cash Management Account. It is not basically a savings account but allows you to hold cash in a taxable brokerage account or a retirement account. Online platforms and robo advisors offer the best advice related to it.

 

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Mentioned above all the five major types of savings accounts. To choose a savings account, it is essential to choose and set your financial needs first. You may open multiple savings accounts to serve your multiple needs and financial goals. But before investing your money check out the terms and conditions carefully. Use your hard earned money wisely.