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Savings accounts protect money and grow wealth through compound interest. While they don’t offer the same interest rates they once did, saving accounts are still safe places to stash money you won’t use immediately or save for specific goals. Many financial experts suggest keeping an emergency fund equal to three to six months’ salary in a high-yield savings account. Below, you’ll find the different types of savings accounts and how they can work for you. 

Understanding How Savings Accounts Work

A savings account is a safe place to store money or save for specific goals. You might use a savings account to save for a house downpayment, a special vacation or to have an emergency fund. A savings account is federally insured for up to $250,000 per account owner to keep your money safe. With a savings account, you can earn modest interest of 0.01% or up to 5% in the case of high-yield savings accounts.  

6 Types of Savings Accounts

These six types of savings accounts offer different interest rates and minimum balances. They all have pros and cons. Here’s an overview of the different types of savings accounts to help you find the best one for you.

Traditional Savings Accounts

Traditional or regular savings accounts are available through most banks and credit unions. These accounts usually have a low minimum deposit. Traditional savings accounts are insured by the Federal Deposit Insurance Corp. (FDIC) or National Credit Union Administration (NCUA) for up to $250,000 per account owner or $500,000 per couple. 

With a traditional savings account, you can typically withdraw funds up to six times per month. You don’t usually have access to a debit card or checks linked to the savings account. Interest rates vary by bank but are typically low at 0.01% to 1.5%.

Online Savings Accounts

An online savings account functions like a traditional savings account but without physical locations. Instead, you’ll use an app or website to access and manage funds. Depending on the bank, these are usually also FDIC or NCUA insured up to $250,000 per account owner or $500,000 per couple. Make sure to choose an online bank or credit union that is federally insured.

Online savings accounts may have lower fees than traditional savings accounts as you’re not paying for the physical location. Interest rates are comparable and can vary from 0.01% to 5%, depending on the bank and account type. Minimum balances vary, but many online savings accounts require a low minimum balance.

High-Yield Savings Accounts

High-yield savings accounts are most often recommended by financial advisers because they allow your money to earn more for you. You can find high-yield savings accounts at online or traditional banks, neobanks and online credit unions. These accounts offer a higher annual percentage yield (APY) compared to regular savings accounts, usually 3.5% to 5% APY. 

High-yield savings accounts are FDIC or NCUA insured up to $250,000 per account holder, assuming the bank is FDIC insured. Many high-yield savings accounts with the lowest fees and highest interest rates are online. 

Money Market Accounts

Money market accounts are like traditional savings accounts but give you greater access to your money. You’ll find features you’d typically find in a checking account, like a debit card, checks and the ability to withdraw cash at an ATM. Interest rates for money market accounts range from 0.01% to 4.88%, making some money market accounts comparable to high-yield savings accounts. 

Money market accounts from a federally insured bank or credit union are FDIC or NCUA insured up to $250,000 per account holder. 

Health Savings Accounts (HSAs)

Health savings accounts (HSAs) don’t function like traditional savings accounts. Instead, an HSA is an account where you can save money to pay for approved medical expenses. The advantages of an HSA are that you could minimize overall healthcare costs by using untaxed HSA cash to pay for copayments, coinsurance, deductibles or other healthcare costs.

HSA funds usually cannot be used to pay insurance premiums. But if you have a high deductible health plan, these accounts can be a way to build savings specifically to pay for expenses not covered by insurance.

Joint Savings Accounts

A joint savings account functions like a traditional or high-yield savings account but has two account owners. These are available in traditional and online banks and credit unions. On a joint account, each account holder will get access to the account to withdraw or move funds. Interest rates vary from 0.01% to 5%, and fees vary from low or no fees to high monthly fees.

With a joint savings account, you’ll get FDIC or NCUA insurance up to $500,000 on the account, allowing you to save more securely.   

Using Different Savings Accounts

Savings accounts are an important tool for protecting wealth. Don’t limit yourself to one savings account. You can choose different savings accounts for different goals or situations. 

For example, a high-yield savings account could be best for an emergency fund while a money market account could make sense for a vacation fund. Likewise, you could add a health savings account and another savings account for other goals. However it works for your family, building savings and taking advantage of higher interest rates and security of savings accounts can help you achieve financial security and long-term freedom.

Frequently Asked Questions

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