Achieve Financial Goals and Freedom by Using a Savings Accounts
A savings account is an excellent place to store money you don't intend to spend anytime soon. It gives you a small amount of interest while keeping your money secure and accessible. These accounts are helpful for long-term goals like saving money for a house, mortgage payments and short-term needs like emergency funds.
Several savings options are available and other choices that function similarly. It's crucial to be aware of your options because various banks and account types have different features.
In this article, we will go over the types of savings accounts currently available to people in the United States, their pros and cons, their features and who they would be best for.
Types of Savings Accounts Currently Available in the U.S.
Here's a detailed analysis of the types of savings accounts to help you choose which is best for you.
1. IRA Savings Account
An individual retirement account (IRA) is a great way to save money for retirement in a way that's tax-advantaged. There are actually 3 main types of IRAs, each with their own advantages:
- Traditonal IRA: With this type of IRA, you can make contributions that you can later deduct on your tax return. Any earnings that are gained can potentially grow tax-deferred until it is withdrawn in retirement. There is a chance that this money can be taxed at a lower rate depending on the situation.
- Roth IRA: Is an individual retirement account designed to help you save for retirement. It allows for after-tax contributions with the potential for tax-free income in retirement. Provides an alternative to making nondeductible contributions to traditional IRAs.
- Rollover IRA: It is a process that allows you to move funds from your previous employer-sponsored retirement plan into an IRA. When you roll over your old retirement account into an IRA, you can preserve the tax-deferred status of your retirement assets without paying current taxes or early withdrawal penalties when transferring.
2. Traditional Savings Account
A traditional savings account is the primary type of savings account found at conventional banks or credit unions. These savings accounts generally enable owners to receive interest on money saved. However, the rates are normally lower than other savings options. With a small minimum deposit, you can open traditional savings accounts at several banks and credit unions.
The features of this account include quick access to money and withdrawal limits of up to six per statement cycle (excluding ATM withdrawals and cash outs at an outlet). However, the six-withdrawal limit was removed in 2020 when Regulation D restrictions were eased.
However, the bank or credit union can still impose fees if you exceed your monthly withdrawal limit. To know more, kindly check the bank's policy.
A savings account is considered a deposit account because you'll be depositing money. As a result, if the Federal Deposit Insurance Corporation insures your banking institution, you are qualified for insurance from the agency.
On the other hand, if you use a credit union, your funds should be protected by the National Credit Union Administration. Your accounts, in both cases, are insured up to $250,000 per banking institution, protecting you if the entity collapses.
Best for: Individuals who want to save for a long-term or short period but are not particularly concerned with getting the best interest rates.
Pros:
- Account registration is easy.
- Interest on savings.
- Account can be managed online.
Cons:
- Interest rates are usually low.
- Additional charges on excess withdrawals.
3. High-Yield Savings Account
High-yield and traditional savings accounts have similarities with one significant distinction. The interest rates on high-yield savings accounts are higher than those on traditional savings accounts, which allows you to grow your money more quickly without sacrificing safety and liquidity. As a result, this is among the best types of accounts for maximizing the gains of your savings.
Online banks frequently offer various high-yield savings accounts to entice users who want to earn a higher interest rate than conventional banks and credit unions. In addition, if you feel more at ease managing your account online or through mobile banking than going to a branch, this type of savings account will suit your needs.
The Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insures high-yield savings accounts, just like they do traditional savings accounts. Besides providing better rates, online banks typically impose fewer or lower fees, such as monthly maintenance or excess withdrawal charges.
Best for: Individuals who want to minimize fees while earning a more lucrative rate on their savings.
Pros:
- Higher interest rate.
- Lower minimum deposit requirements.
- Little or zero monthly charges.
Cons:
- Users can’t deposit cash to bank branch.
4. Students Savings Account
A student savings account is a savings option designed especially for students. Student savings accounts frequently have qualities that simplify banking for young individuals who have limited financial resources. For example, students could open accounts that don't require minimum opening deposits or recurring monthly charges. Additionally, these student accounts typically have an age restriction for opening; for instance, if you are 25 or older, you might not be able to do so.
Although they typically have lower fees than standard savings accounts, these accounts still offer several of the same features. In terms of rates, these accounts are typically not made to contend with high-yield savings accounts. However, they can still offer considerable interest while aiding students in saving for their education.
Opening a student savings account is similar to a regular bank account: you can apply in person or online. However, before you begin, ensure you have the required documentation; for example, you'll require at least two forms of identification.
Best for: Students who want accounts designed to accommodate college tuition and fees savings.
Pros:
- Lower monthly maintenance fee.
- Savings for a variety of education financial goals.
- Easy registration process.
Cons:
- Lower interest rates.
- Several restrictions.
5. Accounts with Automatic Savings Features
An account with automatic savings features is a savings plan where a fixed amount of money is automatically deposited into the owner's account at pre-determined intervals. The basic form of this savings feature is a bi-weekly automated transfer from an individual's bank account to a savings or investment account.
A savings account with automated savings features can aid you in achieving your financial objectives. For example, you can frequently allocate a percentage of your direct deposits to particular savings goals or accounts with these savings accounts. Some banks will even examine your account and transfer funds when they are not required for other expenditures.
To select the best savings account using automated savings features, you need to find an account that meets your needs and financial objectives. In addition, you will need to consider the automated tools, annual percentage yields (APYs), digital banking services and access to funds.
Best for: People who want to steadily build up their savings without manually depositing funds every few weeks.
Pros:
- Convenient option to earn interest.
- Helps in achieving financial goals.
Cons:
- Bank fees.
Final Notes
Your choice of savings account should aid in accomplishing your financial objectives. Consider your needs as you examine your savings options.
You can start by finding answers to the following questions to determine which type will work best for your needs and circumstances: Do I value security and liquidity? Or do I prefer to maximize return even at the expense of liquidity?