Knowing the Difference Between Savings Accounts
As we have discussed before, one of the more popular New Year’s resolutions is to save more money (or to start saving money in the first place). One of the better ways to do this is to create a savings account with whatever bank you choose. While some banks make this apparent, some people might be surprised to know that many different types of savings accounts that exist. Some operate similarly to other types of accounts while others have their own specific rules. Before you throw your money into any old savings account, it pays to know about them first.
Regular Savings Accounts
A normal savings account is an interest yielding account that normally penalizes you for excessive withdrawals. A similar account to this would be called a money market account. It shares the same rules as a regular savings account with some slight changes (increased initial deposit and sometimes a higher interest rate). Most of these accounts will extract a fee if you withdraw or transfer from them more often than not. Some of these accounts will even turn themselves into a checking account if you’re not careful.
Rewards Savings Accounts
A reward savings account acts just like a regular savings account, except that it incentivizes the act of making deposits. The idea of a rewards savings account is that the more you put into the account, the more you get out of it, literally. These types of accounts have rewards tiers that usually increase the interest rate n your account the more money you have stored away. This gives you much more of a reason to save, but note that in order to avoid maintenance fees or account shutdown, you’ll have to maintain a sizeable average balance.
Certificate of Deposit (CD)
This is a type of savings account that doesn’t allow you to touch the deposited money for a predetermined amount of time. While some accounts let you choose the amount of time and others don’t, CD accounts tend to yield more in terms of interest than your typical savings account. The main downside is that withdrawing from a CD account can result in steeper penalties than your typical savings account as well.
These are the most common forms of savings accounts that you’ll see. There are other types that people aren’t made aware of unless they need them (like IRA’s or 529 plans). However, if you’re looking for a savings account to get you started in the new year, consider one of these and call your financial advisor to see which one suits you.