Types of Savings Accounts
Just like with any product, there are many different types of savings accounts. Although some provide excellent returns, others fall short. The following are options worth consideration. You probably know a little or a lot about some of these, however, some might seem foreign.
As an interest-bearing savings account, the money you add to a savings account earns interest. Although you can withdraw money whenever you want, most financial institutions cap the number of transactions to six per month. If you make more than six transfers in and out per month, the account could block them or convert the account to a checking account.
Also, you can send money to another account, such as from savings to checking, or transfer funds to a third party. You can do this at a bank or on one of the banking apps.
Jumbo savings account typically involves deposits of $100,000 or more. It’s the size of the despite that gives the account the name “jumbo.” Although not always, a lot of banks pay a higher interest rate.
As the name implies, these are “high-interest” or “high-yield” savings account
that pay significantly higher interest compared to the current average. However, you must maintain a relatively high balance, and sometimes, meet additional criteria.
Reward savings accounts have unique incentives attached. However, the bank may encourage you to open a checking account or maintain a specified balance in your savings. Along with perks, most banks pay a higher interest rate compared to other savings accounts.
In the case of joint savings accounts, there’s more than one account holder. As an example, you and your spouse or children could open an account together. The greatest advantage is the FDIC insurance limit usually multiplies based on the number of parties on the account.
Whether you currently attend high school or college, student savings accounts are an excellent option since they offer lower minimum balance requirements and other flexible terms. As soon as the student gets their first job, they should open up a student savings account.
Certificates of Deposit
Often referred to as a “CD
,” certificates of deposit make it so you must agree to maintain a specific amount of money in the account and for a predetermined timeframe, usually one month to two years although some banks now have a five-year option. Although you can take money out, the bank would penalize you for doing so. On the other hand, by leaving the money in the account, you’ll earn a higher interest rate than with other more conventional types of savings accounts. In fact, these are more of a investment account than a savings account.
Designed specifically to help students with an assortment of college-related expenses, including tuition, books, lab fees, and so on, this is ideal for helping a child or grandchild work toward a degree in higher education. Some banks allow people to open a college savings account to help with room and board as well.
Individual Retirement Arrangements
Much like CDs, Individual retirement arrangements
are investment accounts than savings accounts. Known as an IRA, this savings account allows you to deduct up to $5,500 per year under the age of 50 and $6,500 if 50 or older. The focus of this account is to help people save for retirement. Although there is a standard income tax on withdrawal distributions, investment earnings remain tax-free. Something else to consider is if you decide to pull money out prior to reaching age 59 1/2, you must pay a 10% penalty along with the current income tax rate.
Like a traditional IRA, Roth IRA accounts have no tax deductions on contributions.
401K Retirement Plans
As an employer-sponsored type of savings account, the company you work for can match the amount of money you add to your 401k. Keep in mind that you can defer as much as $18,000 of pre-tax income.
Also, while most employers match a 401K retirement plan 50/50, not all do. Like an IRA, you do have to pay standard income tax, and pulling any money from the account before reaching 59 1/2 years of age would result in a 10% penalty.
Health Savings Account
With an HSA (Health Savings Account), you can grow your money tax-free. The only time there’s no tax on withdrawals is when the money goes toward medical expenses. Another caveat is that to participate, you must enroll in a high-deductible healthcare plan. While not for everyone, this is yet another type of savings account worth considering.
Banks for the Best Savings Accounts
Within the banking sector, interest rates, savings and checking accounts, options change. Therefore, you want to identify the banks with the best products. As of February 2019, the following banks rank among the best for savings accounts.
Remember, not all of the banks have brick and mortar locations, meaning some operate solely online. Obviously, you need to do your due diligence when working with an online bank but never discount them as a viable possibility.
Along with the option of making eCheck deposits and receiving a free checking account, Ally Bank has no minimum balance on which you earn 2.20 Annual Percentage Yield (APY).
American Express National Bank
As being a Fortune 500 company, American Express National Bank pays a 2.10 APY on a standard savings account with only a $1 balance.
You’ll love the fact that you can earn a 2.20 APY on a savings account with no minimum balance required and no monthly maintenance fees when you choose Barclays Bank.
Capital One offers customers a 2.00 APY on money market accounts with a balance of $10,000 or higher.
CIBC Bank USA
What makes CIBC Bank USA such a great option is that the bank pays a competitive 2.39 APY on a $1 minimum balance.
At CIT Bank, both the Savings Builder or Premier High-Yield Savings account compound interest daily. For the Savings Builder Account, a $100 deposit and minimum balance bring in a 2.45 APY. The Premier High-Yield Savings account has the same APY, but you must maintain a minimum balance of $25,000 or higher.
Not only does Citizens Access Bank not charge any fees on its savings accounts, but it also has a 2.35 APY on its conventional plans in exchange for maintaining a $5,000 minimum balance.
Goldman Sachs Bank USA
With just $1, you can open a standard savings account to start earning a 2.25 APY and avoid paying transaction fees at Goldman Sachs Bank USA.
HSBC Direct Savings
Much like Goldman Sachs, for a $1 balance, this bank pays a 2.22 APY at HSBC Direct Savings.
State Farm Bank
Another great option for the best savings accounts is State Farm. You can open a money market account for $1,000 but to earn the 2.25 APY but you must maintain a minimum balance of $5,000.
Along with a 2.20 APY, Synchrony Bank has no minimum balance requirement.
Top Benefits of Opening a Savings Account
Opening a savings account is a great way to start putting money aside, whether for something specific or financial peace of mind. However, there are many additional benefits to making this decision.
For instance, if you select an FDIC-insured bank, which means the Federal government insures balances up to $250,000, you never have to worry about something bad happening to your hard-earned money.
Also, most banks allow you to make a certain number of withdrawals or transfers each month without penalty. Then, by choosing one of the banks that pays the highest interest, you’ll see your money increase quickly. There’s also the fact that most financial institutions provide their customers with ATM and online account access, making money management easy.
The Bottom Line - What's the Best Savings Account?
In the end, there isn’t a best savings account, there’s just a best savings account for you. With the right savings account, you can sock money away and enjoy the process of increasing it. Use the information provided to determine the bank and type of account that best serve you and your goals.