Types Of Savings Accounts

A savings account is a place to keep the money you don't intend to spend right away. Whether saving for an emergency fund, a vacation, or more long-term investing, a savings account can help you stay on track with your financial goals and budget.

There are several different types of savings accounts, each with unique benefits. Depending on your plans, some may align better with your needs than others. Knowing how these accounts compare can help you determine which options are the best for your savings goals. You can also find savings accounts at various financial institutions, from traditional banks and credit unions to more unconventional online-only banks.

Here's an overview of the most popular types of savings accounts and their pros and cons.

Traditional Savings Account

A traditional savings account is one of the most common available. You'll typically find them at banks or credit unions[1]. Traditional savings accounts pay a small interest rate, known as the annual percentage yield (APY).

These accounts help you save money for both long- and short-term uses and allow you quick and easy access to your money for an emergency fund, for example. Funds in a traditional savings account are protected up to $250,000 per depositor per account by the Federal Deposit Insurance Corporation (FDIC)[2].

Pros Of A Traditional Savings Account

  • It's generally easy to open an account at your local bank or credit union branch or online.
  • It provides a liquid source of funds, allowing easy withdrawals and deposits.
  • You'll earn some interest on the money in a savings account.
  • Many banks and credit unions allow you to manage your account online or via a mobile app.

Disadvantages Of A Traditional Savings Account

  • You generally won't earn as much interest in a conventional savings account as a high-yield one.
  • There may be limits on the number of withdrawals you can make each month.
  • You could have to pay monthly maintenance fees.

Money Market Savings Account

Money market accounts (MMAs) are similar to traditional savings accounts. However, they also have some features of a checking account, with many banks and credit unions offering depositors the ability to write checks and use debit cards against the account.

MMAs also allow you to earn interest on your savings, though rates may vary depending on the bank. In some cases, rates may be higher than a traditional savings account.

Pros Of A Money Market Savings Account

  • It's generally a simple process to open an account at your local bank or credit union branch or online.
  • You'll still have easy access to your funds and account liquidity.
  • You may get higher APY rates than traditional savings accounts.
  • You can have some of the benefits of a checking account, such as the use of written checks and ATMs.

Disadvantages Of A Money Market Savings Account

  • These accounts may require a higher minimum balance.
  • You may have limits on the number of monthly transactions on the account.
  • Interest rates could vary depending on account balance.
  • You may have to pay monthly maintenance fees.

Certificate Of Deposit (CD)

A CD, or Certificate of Deposit, is another savings option banks and credit unions offer. It is a financial product that typically has a higher interest rate than a regular savings account. However, with a CD, you commit to leaving your money untouched for the duration of the term to earn the stated interest.

CDs have a fixed term, usually ranging from a few months to several years, and often lack liquidity compared to other savings accounts. You can't withdraw funds before the term without paying a penalty.

Pros Of A Certificate Of Deposit

  • Generally, CDs offer higher interest rates than traditional savings or money market accounts.
  • They come with a fixed interest rate, so your returns are predictable.
  • Different term lengths are available to match your financial goals.
  • CDs are also protected up to $250,000 per depositor by the FDIC.

Disadvantages Of A Certificate Of Deposit

  • You can't withdraw your money for the duration of the CD term without paying a penalty.
  • If market interest rates rise, you're still locked into the lower rate of your CD until it matures.
  • Minimum deposit requirements can sometimes be higher than other savings accounts.
  • You can't add more money to a CD until it matures.

High-Yield Savings Account

High-yield savings accounts have become increasingly popular among consumers looking to earn more interest on their savings. These accounts can offer a higher interest rate than traditional savings accounts, meaning your money can grow faster. This can be especially beneficial when saving for a major goal, such as a down payment on a house or a dream vacation.

High-yield savings accounts also offer convenience and flexibility. You can sign up for these accounts through banks, credit unions and online financial institutions. These savings accounts allow you to access your funds online or through a mobile app so that you can manage your savings anytime.

Pros Of A High-Yield Savings Account

  • They can offer higher interest rates than traditional savings accounts.
  • Like a traditional savings account, you'll have easy access to your money.
  • Online accessibility means managing your account from anywhere is simple and convenient.
  • As with traditional accounts, the FDIC protects funds up to $250,000 per depositor.

Disadvantages Of A High-Yield Savings Account

  • Some may require a higher minimum balance.
  • You might experience limits on the number of monthly transactions.
  • Online banks may not offer the same level of personal customer service, and your funds could be at risk if the bank is not FDIC-insured.

Savings Accounts For Longer-Term Options

Some may want to use savings accounts to save for the long term — decades or more — for goals such as retirement or a child's education. In those instances, some saving options may be a better fit than traditional, money market, or high-yield savings accounts.

529 Savings Plans

With the cost of higher education growing, many look to 529 plans to help save for their children’s or grandchildren’s future. 529 plans are tax-advantaged savings tools that can help cover future qualified educational expenses, such as books, tuition, and living expenses.

These plans are available for both public and private K-12 schools as well as universities and institutes of higher education. Investments in 529 plans grow tax-deferred, and qualified withdrawals aren't subject to federal income tax (and in some cases state income tax as well)[3].

Pick The Right Savings Account For Your Needs

Choosing the right type of savings account depends on your financial goals, liquidity needs, and risk tolerance.

Before choosing a plan, it's essential to understand the features and benefits of each type to make an informed decision. You might choose more than one of these savings accounts to meet your goals.

Diversifying your savings and continuously re-evaluating your strategy can help ensure a secure financial future. Learn more about PNC's suite of saving options.