A simple guide to savings accounts

Everyone has a checking account. It’s an easy way to manage your money. However, these accounts generally don’t pay an interest on your money. Saving accounts are bank deposit accounts that pay you an interest on the money that you deposit.

Savings Accounts
There are a few different types of savings accounts you can choose from:

Regular Savings Accounts
These are deposit accounts that you can set up in banks, They are insured by the FDIC so your money is quite safe. Savings accounts have minimum balance requirements. they don’t let you withdraw money from them as easily as a checking account. These accounts are meant to be your savings, after all, not fund your regular expenses.

Some accounts might let you write checks a few times a month. Interest paid on savings accounts are generally low, around 0.06%.
Online Savings Account

These accounts are offered by traditional brick & mortar banks and online only banks. Generally, online banks offer a higher rate of interest than traditional banks, since they don’t have the large overheads that are involved in operating a traditional bank. These accounts are more flexible about minimum balance requirements. You can operate these accounts online or through the phone.

The interest rates on online savings accounts can be above 1%, especially if the balance is high. Some savings accounts, both regular and online, can offer higher interest rates based on how much you deposit into the account.

Money Market Deposit Accounts
These are different from regular savings accounts from the perspective of the bank. Usually, banks can only loan money in savings accounts to their customers. With Money Market Deposit Accounts, banks can invest these deposits in debt instruments like treasury notes, municipal bonds, certificates of deposits, and other securities with short maturity periods. The minimum balance requirement tends to be higher on these accounts when compared to normal savings accounts. Your money is safe since the deposit is backed by the FDIC. These investments yield higher returns, so the interest rates on these deposits are higher than regular savings deposits. But they’re not as high as the interest on online savings accounts. As of March 2017, the highest interest rate on a money market deposit account stands at 0.85%.

Certificates of Deposits(CD)
These are deposits made for a fixed term, and the interest accrues on the deposit until maturity. These deposits are generally made for periods that range from one month to five years. There’s a penalty for early withdrawal of money from a CD. Interest rates on these deposits can be a lot higher than regular savings accounts. The current average being 0.79% APY. One online bank, Capital One 360, offers a rate as high as 2.30% APY on 60 month deposits.

Automatic Savings Plans
These facilitate regular savings. You decide how much you’ll transfer each month from your checking account to the savings account. Then you’ll set up automatic transfers of a fixed amount to the savings account each month. These accounts help you save funds for vacations, buy appliances etc. Savings accounts may not yield as high a return as other investments, but they’re a good way to provide security. You can build cash reserves for leisure and emergency requirements through this method.

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