There are several types of savings accounts out there, find out which one of them suits your financial goals the best!

No matter what your financial goals are, there’s a savings account out there that can suit them. But with so many types of savings accounts available, it can be hard choosing the best one for your needs. Which is why we are going to talk about some of the main options.

By understanding their differences, you can figure out which one fits into your plans. Also, if you want to check out more financial tips on our website, you can click on this link!

What Is A Savings Account For?

The primary goal of a savings account is to provide a safe and secure place to store your money while also allowing it to grow over time. How? Well, your money earns interest, which essentially means you get paid for saving, allowing to accumulate at a faster pace than if you just kept it at home. On top of that, in most cases, your savings are insured by the Federal Deposit Insurance Corporation (FDIC) up to a certain limit, providing peace of mind, knowing your money is protected even if the bank encounters financial difficulties.

7 Types Of Savings Accounts You Should Consider

• Traditional Savings Accounts: grant you easy access to funds through withdrawals, but pay lower interest. This type of account may charge you fees and interest earned is taxable income;

• High-Yield Savings Accounts: offer significantly higher interest rates, helping your money grow faster, but limit the access to your money. Be mindful that inflation may take a toll on your interest;

• Savings Certificates (CDs): they are ideal for long-term goals and guaranteed returns, once they offer a fixed interest rate for the chosen term. The longer your term is, the higher is the interest rate. However, if interest rate set by Federal Reserve rises, yours won’t. Keep in mind that, withdrawing your money before the CD matures usually incurs a penalty that draining months’ worth of interest;

• Money Market Accounts: also grant easy access to your money, while typically offering slightly higher interest rates than traditional savings accounts, but you’ll need a higher balance to earn the best rates. Some of these accounts may even have minimum balance requirements in order to earn interest;

• IRA Savings Accounts: designed specifically for retirement planning, Individual Retirement Arrangements Accounts – such as Roth IRAs and Traditional IRAs -, allow you to put in up to $6,000 annually into these accounts, or $7,000 if you’re 50 years old or more. With a Roth IRA, you contribute money that’s already been taxed, and when you reach 59½ years old, you can withdraw it tax-free. On the other hand, a Traditional IRA gives you the possibility to contribute money before taxes, but you’ll pay taxes on it as income when you withdraw it after reaching 59½ years old;

• Health Savings Accounts (HSAs): allow you to contribute pre-tax dollars to  manage healthcare costs and cover qualified medical expenses. This translates to tax savings on contributions, tax-free growth on interest earned, and tax-free qualified withdrawals. However, you must be enrolled in an HSA-eligible health plan and if you withdraw the money before the age of 65 for non-qualified expenses, you may end up paying a 20% tax penalty along with incurring an income tax liability;

• Cash Management Accounts: give you a place to keep cash that you might want to invest elsewhere, such as a taxable brokerage account or a retirement account. Many online brokerages and robo-advisor platforms provide these type of accounts for their investors. The cash held in these accounts can earn interest, usually at a higher rate compared to traditional bank accounts. You get easy access to your money, but these accounts aren’t always covered by FDIC insurance.

Which One Should I Choose?

Ultimately, it depends on your personal needs and financial goals. Here are some things to consider when making your decision:

• Interest Rate: compare interest rates offered by different banks and accounts. While a higher rate is always desirable, don’t solely focus on this factor;
• Minimum Balance Requirements: some accounts have minimum balance requirements to earn interest or avoid fees. Choose an account with a minimum that you can comfortably maintain;
• Accessibility: consider how easily you’ll need to access your funds;
• Account Fees: be aware of any monthly maintenance fees or withdrawal fees associated with the account.