When it comes to setting aside money for future use, it’s hard to beat a savings account's appeal. According to recent data, Americans deposited approximately $1 trillion into savings and investment accounts in March 2023 and it's easy to see why. Savings accounts are simple to open, provide assurance that your money is safe and almost always pay interest on balances.
However, many consumers may not realize there are multiple interest-bearing deposit accounts to help reach their financial goals, such as money market accounts and certificate of deposits (CDs).
As one of the most popular interest-bearing deposit accounts, many banks and credit unions offer traditional savings accounts. These accounts generally have low minimum balance requirements and earn interest, but the interest rate may be minimal. Despite having lower rates, traditional savings accounts provide flexible access to your money and consumers can open multiple accounts easily to help achieve different savings goals.
Money market accounts (MMAs) often come with the check-writing privileges and debit card access you'd get with a traditional checking account, plus the benefit of a relatively high-interest rate. Unlike many checking or savings accounts, money market accounts often have a tiered rate structure. For instance, you might see a money market account that provides a higher rate for a larger balance and lower rates for smaller balances.
With a CD account, you make an initial deposit and leave your money in the account for a specific term, often six months to five years. Credit unions and banks typically offer generous rates for CDs in exchange for holding your money for an agreed-upon term. This means that while you won't be able to access your money for a while, you could earn hundreds in interest, depending on your deposit amount and rate.
Employers may offer employees health savings accounts (HSAs), though it's possible to open an HSA on your own. You'll need a high-deductible healthcare plan to qualify for an HSA. HSA money can be used to pay for qualifying medical expenses, and these accounts offer tax benefits.
Common with online-only banks, high-yield savings accounts work similarly to traditional ones. You typically earn a higher rate on your deposits and can withdraw and deposit money as needed, within limits your bank or credit union sets.
Considering your situation and comparing options before opening a new savings account is wise. Here are some essential things to think about.
You can use savings accounts to set aside money for single goals or multiple goals, so you'll want to consider your account's purpose before opening one. For example, a barbell or ladder strategy could make sense if you're saving for multiple goals.
With a barbell strategy, you deposit money into multiple accounts with the goal of saving for near- and long-term goals. A ladder strategy works similarly, but account holders focus on medium-term savings goals. These strategies are common with CD accounts but can also be applied to others.
Rates vary by bank and credit union, as well as account type. Consider how much interest potential accounts earn before opening a new one.
Certain accounts may have a higher initial deposit or minimum balance requirements than others. For instance, you might see a higher minimum balance requirement with a money market account than you'd see with a traditional savings account. Requirements also vary by institution.
Some savings accounts may have monthly maintenance fees, low balance fees or other fees. Be sure to read the fine print to determine what fees may apply before opening a new account.
Certain accounts, like HSAs, offer tax perks. If getting a break on your taxes is important, consider the tax benefits of new accounts before moving forward.
You want to be sure you can access your money when needed. For instance, some savings vehicles, like traditional savings and money market accounts, offer more liquidity than CDs.
You may incur an early withdrawal penalty with a CD if you take out money before the account matures. In addition, other accounts may come with fees if your balance drops below a set minimum.
Many banks and credit unions offer convenient online and mobile banking access. Beyond just checking in on your balances, digital banking can be beneficial for linking your savings to a checking account. Doing this simplifies funding and could be useful if you overdraft your checking account.
An additional perk of connecting accounts is automatic transfers. With automatic transfers, your bank may automatically round up to the nearest dollar or transfer $1 into your savings account every time you make a qualifying transaction.
It's critical to make sure your deposits are safe. Before opening your account, ensure the bank or credit union is a member of the FDIC (banks) or NCUA (credit unions). This assurance means your deposits are guaranteed up to the allowable limits if they were to cease operations.
If you'd like to open a new savings account, you have several savings options. Those looking for an everyday account may appreciate a traditional, money market or high-yield savings account, while those with longer-term goals might consider a CD. The biggest perk of savings accounts is having multiple accounts at a time and using each to support your unique savings goals.
Learn more about Seacoast Bank's range of savings account offerings today.