Savings accounts are designed to hold your money and earn some interest, although that will vary based on the type of account. Still, the basic premise remains: These accounts typically allow you to securely hold money that you don’t intend to spend right away.
Once you look at your expenses versus your income and see a surplus, it’s time to start thinking about saving. “That can mean an account that’s easily accessible, easy to use, and actually bearing interest,” says Ryan Viktorin, vice president and financial consultant at Fidelity Investments. That way, the money that you’ve worked hard for starts to work for you.
But there are several options you’ll have to consider. That can mean looking at the fine print and understanding minimum balance requirements, fees associated with particular accounts, and interest rates.
Here are six options to consider when opening a savings account.
1. Traditional savings accounts
A traditional savings account is essentially a place to hold your money that earns interest.
This type of account allows you to save money and earn interest on any money you deposit into it, although the rates it offers are low—typically around 0.01%. These savings accounts are offered by traditional banks or credit unions and usually allow regular withdrawals with very few restrictions (like a monthly withdrawal limit set by the bank or credit union).
When comparing savings rates, try using this calculator to see what you can earn on a traditional savings account:
Who it’s for: Associate financial adviser Patrick Marcinko at Bogart Wealth says that a traditional savings account should be considered by anyone eligible for it, even wealthy investors, because it’s designed for people who need quick access to their money. But it’s typically best for individuals who aren’t too concerned about getting the best annual percentage yield (APY), because these accounts don’t offer competitive interest rates.
Fortune Recommends: Milli is an online-only bank that offers stellar savings rates, with APYs as high as 5.50%. You can also utilize built-in goal-setting features to help manage multiple “jars” of money within your account.
| Pros | Cons |
| Your money is easily accessible, and these accounts typically allow regular withdrawals with very few restrictions. | Your money earns lower interest, as banks or credit unions typically offer around 0.01% rates. |
| The Federal Deposit Insurance Corporation (FDIC) insures up to $250,000 in case of a bank failure. | There are typically monthly maintenance fees, but those can be waived depending on the bank or credit union’s requirements. |
2. High-yield savings accounts
High-yield savings accounts are a type of savings account offering an APY that’s much higher than that of a traditional savings account.
In recent years, they’ve become increasingly popular as the Federal Reserve has raised rates several times in its attempt to lower inflation. When the Fed raises interest rates, the APY on your savings account increases as the Federal Funds rate does. These accounts are typically offered by both banks and credit unions. But despite higher interest rates, they might not be the best account for some looking to regularly withdraw money, as there are usually limits.
Who it’s for: Marcinko says that high-yield savings accounts are particularly attractive for investors looking to earn higher returns, but also for those who don’t mind online banking and don’t necessarily need to make consistent withdrawals, as there are often limits to withdrawals. He says, “It’s not like a traditional savings account or a checking account where money can kind of flow in and out. It’s really more for kind of a set aside for the time being.”
Fortune Recommends: UFB Direct offers a high-yield savings account with a 5.25% APY along with no minimum opening deposits or monthly maintenance fees. Since it’s an online-only bank, it provides you with a free ATM card you can use to withdraw funds.
| Pros | Cons |
| Your money earns higher interest, as rates are much higher than those offered by traditional savings accounts. Sometimes, these accounts offer rates above 3%. | There’s no physical branch, so transactions are strictly done online and can take a few days. |
| You’re less likely to be charged a monthly fee because these accounts are offered through online banks. | There are restrictions on withdrawals; typically six per month are allowed without paying fees, according to federal regulations. |
| The FDIC insures up to $250,000 in case of a bank failure. |
3. Certificates of deposit
Certificates of deposit (CDs) are a type of savings account that pays interest on a set amount of money for a fixed period of time.
CDs offer competitive interest rates, but they’re quite different from the two types of accounts mentioned above. The biggest difference: the money must sit in the account for a set time period, which could be six months, a year, or more. If you need to withdraw your money before the term ends, you’ll most likely have to pay a penalty.
Additionally, the interest rate is fixed, so you’re locked in at that rate, whereas traditional and high-yield savings accounts have variable interest rates that can fluctuate with the market. Marcinko says they’re “back in style” now that rates are higher. CDs are typically offered by traditional and online banks and even credit unions.
Here are a few institutions that regularly offer excellent CD rates:
| BMO Alto | Up to 5.15% (on a 6-month CD) |
| First Internet Bank | Up to 5.31% (on a 12-month CD) |
| MYSB Direct | Up to 5.20% (on a 9-month CD) |
| TAB Bank | Up to 5.27% (on a 12-month CD) |
| Quontic Bank | Up to 5.30% (on a 12-month CD) |
Who it’s for: CDs are typically best for people who want to “lock in” high interest rates and can afford to do so by setting aside a portion of their money for a period of time. This type of account is meant for people who don’t and won’t need the money for the time being, Marcinko says.
Fortune Recommends: If you’ve got at least $1,000 to invest, First Internet Bank can be a good option as it’s offering 5.35% APY for a 1-year CD. There are also seven other term lengths to choose from if you’re looking for more flexibility.
| Pros | Cons |
| Your money earns higher interest, as rates are much higher than those offered by traditional savings accounts. | Your money is locked in for a set period of time based on the term you choose. |
| Interest rates are fixed, meaning they will not go down over the set period of time. | There are penalties for withdrawing funds before your term ends. |
| Typically, there are no monthly fees associated with these accounts. | |
| The FDIC insures up to $250,000 in case of a bank failure. | |
| Term options vary and can range from months to years. |
4. Money market accounts
Money market accounts (MMAs) are a type of deposit account paying variable interest rates that can change at any time.
MMAs are typically offered by traditional banks, online banks, and credit unions. These types of accounts are referred to as “hybrid accounts,” Marcinko says, because they often come with debit cards or checkbooks and allow regular withdrawals.
Who it’s for: Because these accounts are a bit more restrictive than checking accounts but a bit less restrictive than CDs, Marcinko says they’re best for people who want higher interest rates but don’t want to lock in their money. Additionally, the higher the balance, the higher the interest rate, so they’re particularly suited for people with a good amount of cash on hand.
Fortune Recommends: Vio Bank currently offers the highest APY for an MMA: 5.30%. You only need $100 to open an account, and there’s no monthly fee to worry about. Vio also provides automatic savings plans that help you grow your money faster.
| Pros | Cons |
| Your money earns interest at higher rates than traditional savings accounts. | Some banks charge monthly fees based on the balance amount, going over the withdrawal limit, or basic maintenance fees. |
| Your money is easily accessible, and these accounts often come with a debit card or checkbook. | |
| The FDIC insures up to $250,000 in case of a bank failure. |
5. Cash management accounts
Cash management accounts are nonbank accounts that are managed online and earn competitive interest rates.
They aren’t strictly designed for savings but allow you to hold both your savings and investments. Cash management accounts are offered by online brokerages and online banking platforms, and typically have lower interest rates than high-yield savings accounts but higher than traditional savings accounts.
Who it’s for: Cash management accounts are typically attractive for investors looking to maximize their cash with interest rates while keeping it mixed in with their investment portfolio.
Fortune Recommends: The Betterment Cash Reserve account doesn’t have minimum balance requirements or monthly fees. While the base APY is 4.75%, you can score an extra 0.75% APY for the first three months with a qualifying deposit.
| Pros | Cons |
| You earn interest on money you plan to invest. | You could earn more interest with high-yield savings accounts because interest rates associated with cash management accounts are typically lower. |
| You have access to features geared toward both checking and savings accounts. | These accounts are not always FDIC-insured. |
| The FDIC insures up to $250,000 in case of a bank failure. |
6. Specialty savings accounts
Specialty savings accounts are accounts pegged to a certain goal, such as saving for a down payment on a house, tuition payments, or retirement funds.
Viktorin says it sometimes helps to have an account geared toward one thing instead of putting all your savings in one account—but that depends on your personal mindset. Similarly, Marcinko says there’s a positive effect of having an account geared toward a personal goal because as the balance goes up, people tend to get more excited because it has a purpose and they’re becoming closer and closer to reaching that goal.
Who it’s for: Specialty savings accounts work for anyone looking to save for a certain goal or fund.
Fortune Recommends: A SoFi Checking & Savings account lets you separate your money into different Vaults, helping you save up for different goals. You can have up to 20 Vaults at one time, and you can turn on automatic savings and roundups to reach your goals faster.
| Pros | Cons |
| You’re saving for a specific goal instead of putting all your money into one account. | Some specialty accounts have withdrawal restrictions, similar to traditional savings accounts. |
| These accounts are typically FDIC-insured. | Interest rates vary based on account type. |
How to choose the right savings account for you
If you’re on the fence about which account type to choose, ask yourself these questions to help guide you to a decision:
- Are you aiming for a specific goal within a defined time frame? If you know you plan to buy a home in the next five years, you may want to take advantage of the currently record-high CD rates and lock in a high APY.
- Will you be using this account for emergency funds, regular savings, or a specific financial goal? If you want to keep an emergency fund stashed away, you’ll want an account that lets you make as many withdrawals as you need, such as an MMA. Regular savings and specific financial goals are better suited to traditional or high-yield savings.
- How much initial deposit can you afford to make? Some CDs and MMAs may require a minimum opening deposit, so research this before choosing one.
- Are you comfortable managing your money online? Many online-only banks offer high-yield savings accounts, but if you want in-person service, you may want a traditional savings account instead.
- Do you want the freedom to make investments? Opening a cash management account gives you the flexibility to invest where you see fit.
- Will you want check-writing or ATM withdrawal privileges? Most traditional savings accounts don’t offer this, so you may need to look toward an MMA or cash management account.
- Are you worried about the future of the market? You never know exactly which direction the market will head, so locking into the current record-high CD rates gives you more security.
Alternatives to savings accounts
Sometimes, none of the above options are the right fit. Here are a few savings account alternatives to consider if you’re looking for something different:
- Investment accounts: If you have a lot of disposable cash, putting it into a savings account with a high APY isn’t the best. Instead, you may be better off looking into an investment account that lets you buy stocks, bonds, mutual funds, or exchange-traded funds (ETFs). While they’re riskier than throwing your money into savings, they typically have much higher returns.
- 529 college savings plan: While savings accounts are great for reaching certain goals, they’re not the best choice for every goal. If you’re saving up for your child’s education, you would be better served with a 529 college savings plan. With this plan, you make contributions with after-tax dollars, so when it’s time to withdraw, you don’t pay additional federal taxes—even on the interest you earned.
- Health savings accounts (HSAs): HSAs are for health care-related expenses. The main benefit of this account is its tax advantages. You fund it with pretax dollars, and you don’t pay any taxes upon withdrawal. If you know you have a lot of medical bills on the horizon, this account might be more valuable to have than another type of savings.
- Individual retirement account (IRA): Whether you’re slated to retire in five years or 30 years, an IRA is a great way to help you prepare. Tax rules vary depending on whether you choose a traditional or Roth IRA, but in either case, your money grows on a tax-deferred basis. IRA contributions are riskier than savings account deposits because they’re tied to the market, but their tax advantages make them a good long-term investment.
The takeaway
Whichever savings account you choose, it’s a beneficial way to earn interest, avoid spending, and start saving for long-term goals or emergency funds, like buying a house or a rainy day when you need it most. Viktorin says that it can be overwhelming, so don’t be afraid to ask for help or make some calls to understand where you’re at now and how to get to where you want to be. “Be empowered to look around,” she says.
