A savings account offers several advantages over other types of saving methods, even though they aren't typically the ones with the highest interest yield. When you keep your money in a savings account you do earn an amount of interest that is at least preferable to keeping your cash under a mattress. Plus, you get to keep and access your money whenever you want. CDs and other long-term savings options offer higher interest yields but they make your money inaccessible for a certain amount of time, or they charge high fees to withdraw early.
Savings accounts typically require a small minimum dollar amount in order to get started. However, it is often much less than other savings options; some are even as low as $1. This allows you to start saving even if you don't have a lot of money to begin with. Plus, if savings account is in an FDIC insured bank it is secure and your money up to $250,000 will be protected.
However, there are plenty of different savings accounts available and there may be ones that suit your needs better than others. Here are things to think about to make a choice that works best for you:
Different Types of Accounts
There are a few major account types to choose from including online savings accounts, typical bank savings accounts and certificates of deposit. Each one may have slight or major differences:
- A typical account with a bank is a straight forward option that offers low interest yields and high security. These are offered at most banks but different banks will have different interest rates.
- Online savings accounts are similar to regular ones but they are managed via the internet. They often have higher interest rates but it may take longer to do things like transfer money. Also, if there is an issue, you won't have the option of talking to a representative in person.
- A CD is very different than the above savings options. CDs are an investment more than they are an account to keep and use money. When you invest in a CD, you must commit to not access your money for a predetermined period of time. Terms can be anywhere between one month and five years or longer. The benefit here is that you earn much more interest than in a regular savings account but the drawback is that you can't access your money before the end of the term without incurring large fees.
Set Personal Goals
Choosing the right savings account mostly depends on your financial goals. If you are looking for a safe place to keep your money with easy customer service all while retaining the ability to access the money whenever you want a typical bank savings account is probably your best bet. You just need to find a bank that offers the highest interest and the lowest fees. If you want the convenience of an online account and you are comfortable with no human interactions you may be able to get slightly higher interest yields. Finally, if you are looking for long term secure investments a CD may be what you need.