Earn Financial Security With These 4 Savings Accounts

Savings accounts are one of the best and easiest ways to feel secure in the present, to prepare for unforeseen but essential expenses and to attain future goals. Maybe that’s why, between 2004 and 2019, the proportion of households with traditional savings accounts rose 10.6 percent^[1].

Despite that upward climb, another survey found that 33% of Americans had only a small amount ($100 or less) in their savings accounts going into 2023^[2]. The past few years have seen plenty of economic turmoil, and starting on a savings journey can seem daunting in any economy. Still, there are several savings accounts that are built for different goals, and picking the right one is the first step along the road to financial independence. Understanding the pros and cons of each can help you determine which is best for your needs.

High-Yield Savings Accounts

What It Is: These accounts come with interest rates that tend to fluctuate with the market.

Pros: A high-yield savings account is a straightforward savings account that usually offers easy access to your money. They are typically easy to open, especially if you already have a checking account at a financial institution. Some banks offer plans that automatically put money into your savings account on a regular basis when you link a savings account to an existing checking account.

Considerations: Regular savings accounts — even high-yield ones — might not yield as much interest as other account options on this list. Some banks also require that you have a checking account with them to open a savings account. Check with your preferred account for the specific rules: Some have a limit to the number of withdrawals you can make each month, or they may come with account minimums to open or maintain the account or to avoid monthly fees.

Certificates of Deposit (CD)

What It Is: A CD will earn a set amount of interest on the lump sum of money that you put into the account to open it for a specified period of time.

Pros: There are many different types of CDs for people who want access to their money at different times. Some common ones include 9-month or 15-month, and they come with a set rate of return that tends to be higher than traditional savings accounts offer.

Considerations: CDs require that you keep your money in the account for a specific period, and you’ll pay a fee to get your money out earlier than the selected maturation time. You’re also locked into an interest rate with a CD. This can be seen as a pro, but it also means that if interest rates rise, you won’t get that benefit. Some accounts have minimum (or maximum) balance limits to open them.

Money Market Accounts

What It Is: Money market accounts usually earn higher interest than a standard savings account since the bank will use your money to invest in regulated funds. Unlike money market funds, though, your account can’t lose value.

Pros: Money markets typically offer easy access to your funds. Some even allow you to write checks directly from the account, or they may come with an ATM card. They tend to have higher interest rates than traditional savings, though rates might not be as high as you might find with a CD. You may be able to get a tiered interest rate that’s compounded monthly to earn you even more.

Considerations: Money market accounts often come with minimum balance and/or withdrawal limits.

Individual Retirement Accounts

What It Is: IRAs are retirement-specific accounts that allow you to save either on a tax-deferred or tax-free growth basis.

Pros: If you’re planning for retirement, there is no comparison to an account that is created specifically for that goal, like an Individual Retirement Account. Whether it’s a Traditional IRA or a Roth IRA will depend on factors like how much you make and how much you plan to contribute each year, but both accounts come with tax advantages and allow you to grow your money year-over-year.

Considerations: There are a lot of rules that go with retirement accounts, including how old you must be to get your money out without paying a penalty, how much you can contribute each year and how they will impact your taxes. Be sure to check with a financial advisor or someone at your bank to determine which is best for your needs.

Whatever savings vehicle is best for you, consider opening an account today. Every little bit adds up when you make saving a habit. Plus, once you start saving for your essential goals you may find it’s easier to be more strategic about other financial elements in your life, like saving for the holidays or teaching your kids about how to handle their own finances.