When it comes time to choose a savings account, there are several options to pick from. While there are many different types that deal with specific goals, there are three basic accounts that cover most general needs. In this article, we’ll discuss general savings account options. If you’re looking for information about retirement and longer term savings, check out our resource on retirement savings.
Here’s what you need to know before deciding which account is right for you.
Regular Savings Account
When most people say they have a savings account, this is what they are referring to. These accounts accrue interest, though generally at a pretty low rate.
This interest rate can range from 0.01% to somewhere under 2%. While the annual payout is lower than other types of savings accounts may offer, it is much easier to access the money.
You are restricted by federal law to 6 withdrawals and transfers per month. Remember, the goal is to save money, therefore you should not be accessing it anywhere near that often! Make deposits as often as you can, but don’t take money out unless it is part of your budget plan or emergency fund.
Money Market Accounts
Money market accounts fall in the middle tier of requirements as far as types of savings accounts go. They typically provide a better interest rate than a regular savings account, but they require a higher minimum balance. This means you will not qualify for the account if your balance falls below a certain threshold. You will be charged a maintenance fee, and any gains accrued through interest will likely be lost to these fees.
These savings accounts are subject to the same federal restrictions as regular savings accounts, with most transfers and withdrawals limited to 6 per month. By the time you have a large enough cushion to open a money market account, it is unlikely you will need to be pulling money from it 6 times per month.
Certificates of Deposit
Long before compact discs took over as the favorite form of music ownership (a form that is now relegated mostly to thrift stores), when people heard the phrase CDs they thought about Certificates of Deposit. These accounts pay the highest interest rate of the three, but also have the strictest requirements. You cannot access the money in a CD at all until the term runs out.
CD terms vary between different institutions, ranging anywhere from 6-60 months. The longer the term, the higher the interest rate at which your money will be earning. These accounts are useful if you are looking to lock up your money for a specific length of time. However, you will face steep penalties in the form of an early withdrawal fee if you try to access the money before the length of the term has expired. Once expired, you’ll need to renew or repurchase the CD option unless you want to move that investment elsewhere.
What Can CreditGUARD Do For You?
As a nonprofit organization with certified credit counselors, we stand ready to help you develop a monthly budget with goals you can meet based on your income and obligations. In order to move up the different tiers of savings accounts, you will first need to get your credit debt under control. Let our qualified credit professionals speak with you today!