If you’re looking to put money aside for future needs and watch it grow, a savings account can be a great option.
Not all savings accounts are created equal, however. There are actually several different types to choose from, and the best choice for you will depend on your goals, how you want to access your money, and how soon you’ll need it.
If you’re looking for easy, in-person access to your savings, for example, you might like a traditional savings account. If getting a high return is your priority, a high-yield savings, CD, or online bank account may be a better option. There are also speciality accounts for longer-term savings goals, like retirement.
Here’s the lowdown on the different types of savings accounts to have and how to choose the best one (or ones) for your needs.
Common Types of Savings Accounts
Traditional Savings Account
“What types of savings accounts should I have?” is a common question. And a typical place to start is with a regular savings account that you can open at a bank or credit union.
If your bank is insured by the Federal Deposit Insurance Corporation (FDIC), then your deposits are insured for up to $250,000 per depositor, per account category, per insured institution. Worth noting? Some banks participate in programs that extend the FDIC insurance to cover millions.1 The National Credit Union Administration (NCUA) provides similar insurance for credit unions.
You can typically open a basic savings account with a small minimum deposit. And, while the interest rates on these accounts tend to be low compared to other savings options, they offer fairly easy access to your funds.
All savings accounts, however, may come with some limits on how many transactions you can make each month. While federal law used to cap withdrawal limits and transfers from savings accounts to six per month, the rule was lifted in the wake of the coronavirus pandemic.
However, many banks still limit electronic and online transactions to six per month.
There are no restrictions on the number of In-person withdrawals and transfers (at the teller or ATM) you can make on a basic savings account.
Online Savings Account
Brick–and–mortar financial institutions aren’t the only place where you can shop for a savings account. If you’re comfortable doing your banking online or from your mobile device, you might consider an online bank vs. traditional bank for your savings account.
Because online-only financial institutions tend to have lower overhead costs than traditional banks, they often pass that savings on to customers in the form of higher interest rates and lower, or no, fees.
While you can’t meet with a bank representative face-to-face, these accounts often come with well-designed and user-friendly websites and mobile apps, along with customer service representatives available by phone.
Like other basic savings accounts, online savings accounts typically have restrictions on the number of transactions you can make per month (typically six) without incurring a penalty fee. ATM withdrawals are unlimited, however.
If you choose an online savings account from an institution with FDIC insurance, then your funds will be protected, even if the online bank were to go out of business.
Recommended: Understanding the Different Types of Bank Accounts
High-Yield Savings Account
Also known as high-interest savings accounts, this type of savings vehicle tends to come with higher interest rates than traditional savings accounts and often lower fees.
You may be able to open a high-yield savings account where you already bank, but the highest rates are often available from online banks (as noted above).
Depending on the financial institution, a high-yield savings account will likely be insured by the FDIC or NCUA up to $250,000 per depositor, per account category, per insured institution, or possibly more.
Like other savings accounts, withdrawals from high-yield savings accounts may be limited to six per month, and going over the withdrawal limit may trigger a fee.
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Money Market Account
Money market accounts can be found at both traditional and online-only banks and are similar to traditional savings accounts in terms of liquidity, safety, and transaction limits.
Money market accounts, however, tend to come with higher interest than a traditional savings account. And, unlike most basic savings accounts, money market accounts often come with a debit card and checkbook, which can make it a little easier to access your money. In other words, you get some of the benefits of checking accounts plus the perks of a savings account in one place.
On the downside, money market funds generally require a much larger initial deposit than a basic savings account. And, you could be charged fees if the balance goes below a minimum amount.
Due to the potentially higher interest rates and check-writing/debit access, money market accounts can be a good choice for emergency funds if you’ve already saved enough to meet the initial deposit.
It can be important to know the distinction between money market accounts vs. money market funds, too. The latter is a type of investment account and not guaranteed by the FDIC or NCUA.
Certificate of Deposit (CD)
Certificates of deposit, or CDs, are available at both brick-and-mortar and online institutions, and can be a good savings tool if you don’t need quick access to your money.
CDs come with a specific term — often between three months and five years — during which you need to keep your money in the account.
In return for leaving your money untouched for that time period, CDs generally offer higher returns than standard savings accounts. Generally, the longer term, the higher the yield.
While savings and money market accounts pay variable interest rates (meaning your rate can change after you’ve opened the account) CDs typically pay fixed rates, so your rate is likely to be locked in once you’ve deposited the cash. You’ll know these funds are safe if they’re FDIC-insured. However, if you pull your cash before the maturity date, you will usually pay a penalty, which might mean losing any interest earned. (There are some no-penalty CDs, but the interest rate is probably lower than you’d otherwise earn.)
Cash Management Account
A cash management account is an interest-bearing account that is usually offered not by a bank or credit union but by a brokerage firm, an investment firm, or a robo-advisor.
They are often well-suited for people who want accessibility plus safety. Though they are not held by banks, they may be insured by the FDIC via a partner bank. Not all are, so be sure to check if you are thinking of opening one.
Cash management accounts, sometimes referred to as CMAs, may provide many of the conveniences of traditional spending accounts. For instance, you may have access to a debit card, paper checks, and auto bill pay. Plus, they often have low or no fees.
Speciality Savings Accounts
The types of savings accounts listed above can be great places to grow your emergency fund or save money for a downpayment on a house. But if you’re looking to save for a more specific or longer-term goal, such as retirement or a child’s future education, you may want to open a more specialized account.
Specialty savings types can be helped along by accounts that are designed to serve a specific financial goal. There are a variety of these accounts, and they can earn interest to help you grow your money, just like other savings accounts. Some of these accounts, however, are investment vehicles, which means they can yield higher returns over the long term, but may also involve some risk.
Among the most common specialty accounts are 529 college savings plans, 401(k)s and individual retirement accounts (IRAs), health savings accounts (HSAs), and custodial accounts for a child (so they can have money for education or other expenses when they turn 18).
Opening a specialty savings account can make sense if you have a singular purpose for saving money. You may want to keep in mind, however, that there may be restrictions on when and how you can withdraw those funds later. Some specialty accounts, such as IRAs, 529s and HSAs, have strict tax rules for making withdrawals.
There are many different types of savings accounts, and the best option for you will likely depend on how and when you want to access your money.
You might like a traditional savings account if you want to bank in person. For better interest rates and lower fees, you might prefer an online high-yield savings account or, if you won’t need the money for a while, a CD.
For more specific savings goals, such as preparing for retirement, covering health expenses, or saving for your child’s education, you may want to open a specialty savings account in addition to a more liquid savings vehicle.
As you make your decision, see what SoFi offers. When you open a new bank account with direct deposit, you’ll earn an ultra competitive APY and you’ll pay no fees, both of which can help your money grow faster. Plus, you’ll spend and save in one place and have access to tools that help you organize your money, set savings goals, and save your change with Vaults and Roundups.
What type of account is best for savings?
There are different kinds of savings accounts that suit different goals and money styles. If you like banking in-person, a traditional bank might work fine. If you prefer the convenience of an online bank, you are likely to be rewarded with higher interest rates and lower fees. If you are saving for a specific goal, a specialty account might work best. For instance, a 529 account if you are stockpiling funds for a child’s future college tuition.
How do I choose a savings account?
Choosing a savings account depends on your needs and goals. If you are looking for an in-person banking relationship, a traditional savings account at a bricks-and-mortar bank could be best. If you want a high-yield account, low fees, and convenience, an online bank’s offerings might better suit your needs. If you’re able to keep your money in an account for a specific time period to earn a set interest rate, consider a certificate of deposit.
Is it better to have a savings account or invest?
This depends on your goals. Savings accounts offer a changing rate of interest, currently from a fraction of a percentage to, say, 2%, but the funds are insured. Investing your funds might earn you a higher return, but the market can be volatile, and your funds are not insured so there is the risk of loss.
1SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by banks in the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at SoFi.com/banking/fdic/terms. See list of participating banks at SoFi.com/banking/fdic/receivingbanks.
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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet..