If you're thinking about opening a savings account, do your research before committing. Not all savings accounts are created equal. The best account for you depends on several things. These include your savings goals, the amount of money you have for an initial deposit, the likelihood you may need to withdraw money prior to your target date and your comfort using technology.

Here are four types of accounts customers may use for savings, with a few points on what to watch for and what type of investors the accounts are best suited for.

1. Basic Savings Account

Also known as a Passbook Savings Account, these accounts are a good introduction to earning interest and saving money. Transactions on a basic savings account are updated either in a passbook when then customer visits their financial institution, or on a statement issued periodically (often monthly). However certain types of withdrawals on basic savings accounts including checks, debit card purchases and electronic transfers are limited by federal law to just six per month.

Funds of up to $250,000 deposited in a basic savings account are insured by the Federal Deposit Insurance Company (FDIC), making this a good choice for investors who want a very low-risk and easy-to-access savings account. Money held in a credit union basic savings account is insured by the National Credit Union Administration (NCUA).These accounts usually offer lower interest rates than other types of savings accounts because of the flexibility in depositing and withdrawing funds.

If you are new to savings, or want to teach your child about savings, a basic savings account can be a good option to get started.

2. Online Savings Accounts

If you like the idea of online banking, an online savings account could be the solution for you. These savings accounts may offer access to view, deposit, and transfer funds online 24/7, and withdraw money from an ATM anytime depending on the type of online savings account you set up. They may be accessible from any mobile device, including a tablet or smartphone. Deposits in these accounts may also be FDIC or NCUA insured.

Fans of online savings accounts may choose them because they offer a relatively high interest rate compared to traditional basic savings accounts. As these accounts are not serviced in branches by staff members, they are less expensive for financial institutions to maintain. This often allows them to provide higher interest rates than traditional savings accounts.

Online savings accounts are good options for tech-savvy customers looking for self-service banking and higher interest rates than basic, brick-and-mortar savings accounts.

3. Money Market Savings Accounts

Banks and credit unions offer a specialized savings account known as money market accounts (MMAs). They may also be called money market savings or deposit accounts. These are different from money market mutual funds offered by investment companies, which are not insured. Funds of up to $250,000 deposited in a bank MMA are insured by the FDIC. Money held in a credit union MMA is insured by the NCUA.

These accounts may offer tiered interest levels, and/or fee waivers for maintaining a certain balance each month.

Money market accounts suit customers who want a higher interest rate than a basic bank account, and are willing to keep a larger balance in their account. They are suitable for investors with savings goals with target dates ranging from a few months to a few years away. Funds may be withdrawn prior to that time.

4. Certificate of Deposit Account

Certificate of deposit accounts (CDs) are a good savings account option for individuals saving for a goal with a defined target date in mind. Available through most financial institutions as well as some brokers, a CD usually pays a higher rate of interest than traditional and online accounts because a fixed amount of your money is invested with the institution for a specific length of time. This may range from a few months to one or more years. In most cases, the longer the term of the CD, the higher the interest rate paid. CDs of amounts up to $250,000 are insured by the FDIC or NCUA to protect investors in the event the issuer experiences financial issues.

Consider a CD to save for a large financial goal within the next five years such as a down payment for a home or an automobile purchase.

The Bottom Line

There are several types of savings accounts available for investors. A basic savings account is a simple, easy-to-use, low-risk account with a lower rate of return suitable for beginning savers. An online account is a convenient, higher interest account option for people comfortable with online banking. Money market savings accounts may offer perks such as better rates for higher balances. And certificate of deposit accounts pay a premium rate for locking a fixed savings amount in for a specified duration ranging from a few months to five years. Deposits to these savings accounts are insured by FDIC or NCUA for amounts up to $250,000.

Related Articles
  1. Savings

    Find the Best Savings Account Rates

    You know how to spot the highest interest rate, but how do you really get the best deal on savings accounts?
  2. Savings

    Money Market Accounts vs. Savings Accounts

    An interest-bearing account that pays a higher interest rate than a savings account and gives the account holder limited check-writing ability.
  3. Bonds & Fixed Income

    How To Earn The Most From CDs When Interest Rates Are Low

    Certificates of deposit might not seem like a good place to keep your money when interest rates are low, but they do offer security and stability. And with laddering and studying promotional ...
  4. Retirement

    Introduction To Retirement Money Market Accounts

    Money market funds are used in retirement plans and accounts because they are liquid, stable and pay competitive rates of interest.
  5. Bonds & Fixed Income

    4 Types Of Money Market Yields

    We give you four equations to help figure out the yields on your investments.
  6. Insurance

    How To Create A Laddered CD Portfolio

    Laddered certificates of deposit offer safe capital and predictable cash flow, while bringing simplicity to your portfolio.
  7. Personal Finance

    Get A Short-Term Advantage In The Money Market

    This investment vehicle is often the perfect stop-gap measure for growing your money.
  8. Investing

    3 Small Steps to Maximize Your Investing Goals

    Instead of starting the New Year with ambitious resolutions, why not taking smaller manageable steps that can have a real impact.
  9. Investing

    7 Creative Ways to Save for an Early Retirement

    Take note of these out of the box steps you can take towards securing yourself an earlier, more comfortable retirement.
  10. Saving and Spending

    Saving $100 Now Is Better Than Saving $1,000 In 10 Years

    Learn why it is better to save $100 every year starting right now rather than $1,000 in 10 years, and find out the benefits of early saving and investing.
  1. What's the difference between an individual retirement account (IRA) and a certificate ...

    An IRA (Individual Retirement Account) can be thought of as an individual savings account that has tax benefits. You open ... Read Full Answer >>
  2. Can a Flexible Spending Account (FSA) be used for Lasik?

    The owner of a Flexible Spending Account (FSA) can use money from the account on various eye surgery procedures, including ... Read Full Answer >>
  3. Can a Flexible Spending Account (FSA) be used for a gym membership?

    The U.S. Internal Revenue Service (IRS) typically does not allow funds from a Flexible Spending Account (FSA) to be used ... Read Full Answer >>
  4. Can a Flexible Spending Account (FSA) be used for dental procedures?

    The U.S. Internal Revenue Service (IRS) allows funds from a Flexible Spending Account (FSA) to be used for qualified medical ... Read Full Answer >>
  5. What do states do with unclaimed property?

    Unclaimed property refers to personal accounts in financial institutions or companies that have had no activity and whose ... Read Full Answer >>
  6. Are Sallie Mae loans considered federal loans?

    Sallie Mae is a private lender, so its direct loans are not federal loans. Basically, federal student loans consist of money ... Read Full Answer >>
Trading Center