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Options to Save: What Types Of Accounts are For You?

You’ve committed to saving for your future self, for emergencies, for vacations, for travel, for your goals, and for your dreams. Your promise was met by action: you monitor your spending, stay within your budget, and make sure you pay yourself first. Now in the back of your mind, there is a worrying thought- Could my money be working harder for me?

The truth is you might need multiple accounts to create the perfect savings strategy that meets your needs. Here is our deep dive into the three most common types of savings accounts:

Still not sure where your money is going? Download our spending tracking sheet here.

Traditional or Regular Savings Accounts are available through banks and credit unions. They provide a small amount of interest but allow you to start saving with a low minimum balance. These saving accounts are ideal for beginner savers or emergency funds that need to have ease and accessibility.

 

Pros

  • It is simple to open and maintain. A low minimum balance allows people who don’t have a considerable savings already to start an account.
  • This money is safely insured by Federal Deposit Insurance Corporation (FDIC) up to $250,000.
  • Access your money online or in person.
  • These accounts are often attached to a checking account, making it uncomplicated to transfer money in and out of them.
  • Your money is almost as liquid as cash. There isn’t a need to wait for stocks to be sold or a lock-in period to end to access your money.
  • These can be a great educational tool to teach children and teens about the importance of savings with its straightforward opening process and low minimum balance.

 

Cons

  • These types of accounts have the lowest interest rates in the industry.
  • There can be maintenance fees on this account if a minimum balance isn’t maintained or an automatic transfer isn’t set up.
  • With an attachment to your checking account, they might be too easy to spend, causing undiscipline savers to spend money earmarked for other things.
  • According to Federal Withdrawal Limits, you can only pull-out money from these accounts six times within one month.
  • Compound interest gains are minimal in these accounts, causing this not to be a great long-term holder of large amounts of money.
  • These accounts will not keep up with inflation with their low interest.

 

 

 

High-Yield Savings Accounts are available mostly by online-only banks. These banks offer limited services but show a higher interest rate than a traditional bank savings account. These account types are ideal for people who have a long-term savings strategy and want to receive the highest returns for their money.

Pros

  • These accounts can pay 20 to 25 times the amount of interest that a traditional account would pay.
  • This money is safely insured by FDIC up to $250,000.
  • Your money is almost as liquid as cash. There isn’t a need to wait for stocks to be sold or a lock-in period to end to access your money.
    • You can log on to your online account 24/7.
    • Many of these accounts don’t have maintenance fees, have no balance requirements, and a low minimum.

Cons

  • The interest rate fluctuates, though it will most likely always be higher than a traditional account.
  • Though the interest rate outpaces other traditional accounts, it doesn’t always yield the gains that investing would over the long-term.
  • These types of online accounts don’t usually offer brick-and-mortar services like checking, meaning you will need to be comfortable transferring money online between two different financial institutions to access your
  • Transfers between two different institutions have a lag time of 24-48 hours.
  • According to Federal Withdrawal Limits, you can only withdraw/ transfer money from these accounts six times within one month.

 

Money Market Accounts offer a balance between Traditional and High-Yield and are provided by traditional banks, online banks, and credit unions. These accounts, sometimes also called money market savings accounts or money market deposit accounts, have higher interest rates than a traditional account but with added access to your funds through checks and ATMs. These accounts are ideal for those who want higher interest with the ease of checks and debit cards with a savings account.

Pros

  • Accounts have higher interest than traditional savings accounts.
  • These accounts are offered through many banks, allowing you to have all your accounts with one institution, making transferring between accounts seamless.
  • This money is safely insured by FDIC up to $250,000. Please note that a Money Market Fund is not the same as a Money Market Account and is an investment account that doesn’t have the same protection.  Money Market Funds are NOT FDIC INSURED – MAY LOSE VALUE – NO BANK GUARANTEE and that All investments involve risks including possible loss of principal.
  • Access your money online or sometimes in person if the bank has brick-and-mortar locations.
  • Your money is almost as liquid as cash. There isn’t a need to wait for stocks to be sold or a lock-in period to end to access your money.

 

Cons

  • Wildly varied when it comes to the minimum balance, some allow you to have as low as $1, and some require $5,000 to $10, This minimum balance can be a barrier for starting savers.
  • The interest rates vary on these accounts too. You will need to do your research to make sure you are getting a higher rate than a traditional savings account.
  • These accounts’ fees can be higher with their added convenience of checks and cards- sometimes there are workarounds like an automated transfer schedule or maintaining a certain balance to reduce or eliminate fees.
  • Though the check and debit options are convenient, they also make it easier to spend your savings more frivolously if you so choose.
  • Like all these types of accounts, you can only withdraw/ transfer money from these types of accounts six times within one month, according to Federal Withdrawal Limits.

 

Didn’t see an account that would fit your needs, explore more savings options here.

The commitment to saving is one step of the process. Ensuring that your account is geared to your present and future needs is essential. It is the difference between your savings working hard for you or you having to work harder. Remember, there might not be one perfect account that fills all of your needs, so don’t be surprised if your savings life expands beyond one institution or type of account.  If you’d like to explore a more personal look into your financial life,  Scarlet Oak Financial Services can be reached at 800.871.1219 or contact us here.

 

 

 

Sources
Advisory services offered through Capital Asset Advisory Services, LLC, a Registered Investment Advisor. This material has been prepared for informational purposes.