Types of Savings Accounts

Savings accounts are the most common way for you to save money and know that your money is secure no matter what happens to the bank. That’s because all savings account deposits are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per depositor, per insured bank.

Following are some of the types of savings accounts you can find at a bank, savings and loan, credit unions and other financial institutions:

Regular Savings Accounts- This is an account where you deposit your money for savings. In exchange for that, the bank pays a pre-determined interest rate (called dividends in credit unions) on the funds. For example, you might deposit $1,000 in an account paying an annual percentage rate of 1.40%. This means if you left the $1,000 in the account for a year, you would earn $14.00 on your money.

These accounts may be subject to minimum deposit amounts, but other than that, you can usually put money in and take money out without any restrictions.

Holiday Accounts- This is a nice way to save for the holidays. It is similar to a savings account but because it is called a “Christmas Club” or “Holiday Fund” people tend to think of it differently and may save more aggressively. As with savings accounts, the deposit amount can usually be taken directly from your check and deposited directly into the account.

Money Market Accounts- In general, money market accounts are super savings accounts. You receive a higher interest rate because the money is deposited into conservative investments like Certificate of Deposits (CDs) or Treasury Bills (T-Bills).

In return for the increased investment return, you are bound by more restrictions. For example, there may be a limit on the withdrawals you can make; you may have to maintain a larger balance and may have to pay penalties for excessive withdrawals.

Individual Retirement Accounts (IRA’s)- These accounts are designed for long-term savings. They generally pay out at higher interest rates. You have a lot of choice of investment options. There are also tax implications. For example, you may be able to deduct the interest. Plus, the money accrues tax free but cannot be taken from the account until a certain age without paying a tax penalty.

No matter which savings account you select, there are so many variables from interest rates to penalties, it really pays to shop around for the best deal.