Although interest rates are very low, having a savings account is a popular and simple way to stash your money somewhere, be it an emergency fund or for a short-team saving goal. But are they all the same?
Whether you have a savings account because it’s where you put in your emergency money, because you have just started to invest and went for the safest option around or because you need to save for a particular short-term goal, you need to know that not all savings accounts are the same.
Here is a list of all the different types of savings accounts available:
1- Basic Savings Account
This is probably the easiest one to get. To open a basic savings account, you just need a very small initial deposit and a very low daily balance. But, of course, in return you also get the least: some banks are paying one-hundredth of a percent, no matter what your balance is. So if you have $1,000, you will get…yes, 10 cents after a year.
2- Money Market Account
This might require a slightly higher opening deposit and daily balance, but interests are also a little bit higher. And when we say higher, we mean a bit more than 10 cents after a year. Chase is paying five one-hundredth of a percent for balances below $10,000, so following the previous example: if you have $1,000, you’ll get 50 cents.
3- Money Market Fund
This is actually a mutual fund that is offered by brokerage companies. Mutual funds usually require a rather large initial deposit and while still very safe, they have no FDIC protection so there is a slight risk of loss. And if you are thinking that with higher risk and higher initial deposit might come a higher interest…yeah, no. Most money market funds are paying as little as any regular savings account.
4- Certificate of Deposit
CDs pay a little bit more than the previous three options listed here, but only because you need to leave your money for a fixed period of time. If you want to really make the most out of a CD, you need to leave your money in there for at least a year. And if you were to take it before the term is up, you’ll be charged a fee.
5- Online Banks
Online banks usually offer better interest rates because they have lower costs for doing business. Some of them don’t require a minimum monthly balance. If you have $1,000, you might get $10 after a year. Not all online banks are insured by the FDIC, so make sure you check before you get started.
6- Credit Unions
Credit unions usually offer higher interests because they are non-profit organizations. To become a member you usually need to be part of a particular industry or organization, but some credit unions are loosening their membership requirements, so check your options.
It’s not like you will make money with a savings account, but it is important to consider this as an option because it is safe and your money is accessible. And that counts!