Outside of a checking account, a savings account is one of the most basic services that a bank provides. It’s a virtually risk free, FDIC insured account for stashing money.
It provides a good vehicle for short or mid-term goals, like saving for a vacation, or establishing an emergency fund. There are several different types of savings accounts available, and in order to choose the right one it’s important to understand the function of each.
Types of savings accounts
When initially talking about savings accounts it’s easy to get discouraged about the very small amount of interest each account earns for you. I mean, at best you’ll earn around 1% for the money you stash in the account.
However, it’s important to keep in mind that a savings account is just that; for saving money! It’s not particularly geared towards producing decent income or increasing your investment.
Different types of savings accounts are simplistic in nature, and are a means to help you save money towards a certain financial goal. That being said, here are four types of savings accounts.
1. Traditional savings account
This type of account is one that almost all banks offer. It’s a no frills, simple place to store and save money. It’s similar to a checking account, in that if you need your money it’s available for immediate withdrawal — most of the time without penalties.
However, you won’t have check-writing abilities, and it might come with a higher opening balance. This account is sometimes called a statement savings account, or a normal savings account.
You can add or withdraw funds at your own discretion, but this type of savings account at a large bank (such as Chase or Wells Fargo) tends to have a very low interest rate.
2. Money Market deposit account
This account can be used like a regular savings account, with a few differences. It normally has a minimum daily balance requirement, and only a certain number of withdrawals are allowed per month.
Many accounts have check-writing abilities but also a small monthly fee charged to them. The interest rate is higher than a regular savings but less than an online savings.
3. Online savings account
This type of savings account is conducted exclusively online by internet access (and sometimes over the phone). You won’t have to pay any monthly fees, there’s no minimum balance and normally you have an unlimited amount of transactions.
Even with the best online savings accounts, it can, however, take 1-2 business days for your money to transfer between accounts, and you won’t be able to withdraw your money using a teller or a physical bank branch.
Since the company doesn’t have to pay for a building or overhead costs, this account generally has a very good interest rate. This is a decent account to use, if you want to make a few dollars on money you don’t need instant access to your money.
4. Certificates of Deposits (CD’s)
Sometimes called CD, a certificate of deposit is a savings certificate giving the owner the right to earn and collect interest upon the maturity date. The maturity date and term can be set anywhere from 30 days to five years, with a fixed interest rate.
This is a great vehicle for saving money you will not be touching for a certain time period. You can lock in one of the best interest rates, with no risk, and watch your balance grow. A couple drawbacks are that you can’t add more money or withdraw funds without paying penalties and possibly forgoing the interest already earned.
5. Mobile savings app
While most of the above choices have been around for decades, mobile money-saving apps are taking the industry by storm. Apps like Digit and Acorns allow users to save and invest money without thinking. Most mobile savings apps are text-based and offer completely free accounts.
The only drawback is that you might not earn as much interest as you would with a traditional savings account. However, this is overcome by the ability to save money without setting up automatic transfers using a tactic called micro-saving.
Very small amounts of money are withdrawn, starting at just $1-2, from your checking account and are added to your mobile app savings account. Next thing you know, you have several hundred dollars saved up without even missing it.
Choose the right savings account
Now that you understand the various types of savings accounts it’s important to choose the right one for your needs. Not all banks and accounts are the same, and you don’t want to end up paying unnecessary fees.
When shopping around for the right savings account, here are some things to consider:
- Monthly fee
- Withdrawal or transaction limits
- Overdraft and ATM fees
- Minimum balance
- Interest rate
- Opening balance needed
- Ease of transfers and withdrawals
With these things in mind, here are some of the best online and mobile savings accounts to consider stashing your cash.
I have been using Digit since January 2015 so I just passed the two-year anniversary mark. Since then I’ve enjoyed Digit so much that my husband and friends even use Digit to save money. The account is free for the first 100 days and automatically withdraws money (only if you can afford it!) from your checking account every few days.
With Digit’s mobile app savings account your money doesn’t specifically earn an interest rate, but you are awarded savings bonuses. The monthly fee is $2.99 but there are no transaction limits or minimums to worry about.
Click here >>> open a free Digit savings account.
I have been a Discover Bank customer for several years and also use their online savings account. They continue to be one of the leaders in the industry thanks to excellent customer service and user-friendly credit cards.
With a Discover Online Savings Account your money will earn an interest rate of 0.95% on all balances. To open a a new savings account you need a minimum of $500 but there’s no monthly fee.
Click here >>> open a Discover Online Savings Account.
Capital One 360
I have also been a customer of Capital One since I was in my early twenties (so that’s nearly a decade for anyone who’s doing the math, ha!). They offer an amazing array of products for freelancers, small business owners and individuals — no matter what kind of banking needs you have.
With a Capital One 360 savings account will be awarded with an interest rate of 0.75% with no monthly fees or minimums required. Plus, you’ll get a $25 bonus for simply being a reader of this blog!
Click here >>> open a Capital One 360 savings account.
Established in 2001, Ally Bank has had an extremely strong reputation for putting their customers first. Their banking services are very user-friendly and they offer great products such as their online savings account.
With an Ally Bank savings account your deposits will earn an interest rate of 1.00% with no monthly fees and only $1 minimum required. You can also easily transfer money back-and-froth from your Ally Bank checking account.
Click here >>> open an Ally Bank savings account.
Tried another type of savings account that you like? Leave your suggestions in the comments below.