6 Types of Savings Account

A savings account can be a secure place to store money that you would not spend immediately. For short-term requirements such as an emergency fund, or long-term objectives such as a home down payment, saving accounts are useful. But it is important to choose the one that is right for your financial needs, and there are different types of savings accounts. Traditional or daily savings accounts, high return savings accounts, money markets accounts, deposit certificates, cash management accounts, and specialty savings accounts are among the options. You can easily choose the best place to store your money by learning how to compare different savings account choices. You can understand the concept of a savings account. There are various types of savings accounts that can be opened in a bank. Depending on your purpose, you can open the one that suits you the most.

Types of Savings Account

For people wishing to save for the future, a savings account may be opened in the banks mentioned below. Customer-specific requirements, banks around the country provide customized savings accounts, such as – senior citizens’ savings accounts, women’s savings accounts, children’s savings accounts, and daily savings accounts. Savings accounts have an interest-free tax advantage of up to Rs. 10,000 under Section 80TTA. Described below are the features and advantages of savings accounts, the facilities available, and the list of banks across the country providing various types of savings accounts. Each bank has a savings account and the RBI regulates all these banks.

 

1. Regular or Traditional Savings Account

You should automatically think of conventional savings accounts while deciding where to invest. These are the savings accounts that conventional banks or credit unions commonly locate. You typically receive interest on your money on a daily or simple savings account, although they usually pay fewer rates than other savings items. Many banks and credit unions will provide you with a low minimum deposit to open a daily savings account. Traditional savings accounts normally allow you, before a penalty is incurred, to withdraw up to six times a month (not including ATM withdrawals or branch withdrawals). You can control your account online, via mobile banking, by telephone, and in a subsidiary by banks and loan unions.

Types of Regular Savings Account

• Zero balance savings accounts
• Women’s savings account
• Kid’s savings account/ Children or minor savings account
• Senior citizen’s savings account
• Family savings account
• Salary account

Best for

People who need to save money for the short or long term and are not as concerned with having the best interest rate, represented as the annual percentage return (APY).

Pros

• It’s usually easy to open regular savings account at a branch, and some banks allow you to do so online
• You can earn interest on your savings to grow your money
• You can visit a branch if you need help or want to deposit cash

Cons

• The interest rates are usually on the low side, compared to other savings options
• Monthly maintenance fees may cancel out interest earnings
• Additional fees may apply for excess withdrawals

2. High-Yield Savings Account

High-yield savings accounts are savings accounts that offer higher APYs compared to normal savings accounts. Online banks also sell high-yield savings accounts to draw savers who want to earn a higher interest rate than those offered in brick-and-mortar banks and credit unions. This type of savings account could be attractive if you are comfortable managing your account via online or mobile banking versus visiting a branch. High-yield savings accounts can be covered by FDIC or NCUA, much like conventional savings accounts. In addition to providing better rates, online banks prefer to charge reduced or lower fees, including annual maintenance or excess withdrawal fees.

Best for

People who want to make savings more competitive while minimizing costs.

Pros

• You could earn a much higher interest rate, compared to traditional savings accounts
• Online banks typically have lower minimum deposit requirements to open an account
• You’re less likely to be charged a monthly fee at an online bank

Cons

• No branch banking access means you can’t deposit cash directly into your account at a branch
• Transferring money between online savings account and accounts at another bank can take up to a few days to process
• You may or may not have access to your money via ATM, depending on the bank

3. Money Market Accounts

Money market accounts (MMAs) combine the features of a standard savings account with the features of a checking account. You can find these accounts in both brick-and-mortar banks and online banks. These accounts, which can also be called money market savings accounts or MMSAs, allow you to earn interest on your savings. Rates are usually higher than normal savings accounts. You will also be able to write checks from your account or access funds using an ATM or debit card. Similar to standard or high-yield savings accounts, banks can charge fees if you make more than six withdrawals per month, even though the easing of the Federal Regulation D restrictions now allows for easier access to your funds. Going over the monthly cap may cause a charge or result in the bank closing your account if it happens frequently.

Best for

People who want to gain savings interest while getting more ways to access their money.

Pros

• Money market accounts can offer better rates than traditional savings accounts
• You may be able to write checks from your account or access your money using a debit or ATM card
• You can open money market accounts at traditional banks or online banks

Cons

• A higher minimum deposit may be required to open a money market account
• Interest rates may be tiered, meaning you’ll need a higher balance to earn the best rates
• Banks may charge a monthly fee for money market accounts

4. Certificate of Deposit Account

Deposit Certificates (CDs) are time deposits, which means that you agree to leave your money in your account for a specified period of time. At that time, your money gains interest, and when the CD matures, you can either remove your savings or roll it into a new CD. You can find CDs in conventional banks and online banks. Between the two, online banks prefer to pay higher interest rates. CD terms generally vary from as short as 30 days to as long as 60 months, with longer terms usually boasting higher rates—though not always, particularly in a lower interest rate setting. CDs are better for funds that you know you won’t need immediately, as banks will charge an early withdrawal penalty if you withdraw your savings before the maturity date. Creating a CD ladder of multiple CDs with varying maturity dates can provide a work-around for this problem.

Best for

People who want to gain fair rates do not need to have quick access to their savings.

Pros

• CDs can offer above-average interest rates for savers pursuing short- or longer-term goals
• There are typically no monthly maintenance fees involved with a CD account
• CDs at online banks may offer lower initial deposit requirements

Cons

• Withdrawing money from a CD ahead of its maturity date may trigger an early withdrawal penalty
• CDs at traditional banks tend to offer lower interest rates than those offered by online banks
• Putting your savings into a longer-term CD makes it harder to capitalize on future interest rate increases

5. Cash Management Account

Cash management accounts are not savings accounts per se. Instead, these plans allow you to keep cash that you can expect to invest in a taxable investment account or a retirement account. Online brokerages and Robo-advisor platforms can provide cash management accounts to their investors. The money kept in the account will gain interest, sometimes at a higher rate than what you will get in the bank. Depending on the brokerage, you can also get all the basic features you’d expect from a checking account. For example, you might be able to write checks, pay bills, or transfer funds to your bank’s accounts.

Best for

People who want to keep cash available to invest in their brokerage or savings accounts.

Pros

• They’re a convenient way to earn interest on the money you plan to invest
• Cash management accounts can offer benefits and features of both checking and savings accounts
• Accounts can be FDIC insured when offered by a third-party bank

Cons

• High-yield savings accounts could offer better interest rates on the money you’re saving
• Since they’re attached to online brokerage accounts, you may not have access to branch banking
• These accounts aren’t always covered by FDIC insurance

6. Specialty Savings Account

Specialty savings accounts are designed to help you meet clear savings targets, rather than being a catch-all for money that you don’t plan to spend. In certain instances, they may be intended for a particular category of a person rather than a target. You can find these accounts in certain banks, credit unions, brokerages, or investment firms. In the case of a Health Savings Account, you would only have access to one if you had a high deductible health plan. Opening a specialty savings account might make sense if you have a particular reason for saving money. Only bear in mind that there might be limits on when and how you will withdraw these funds later.

Types of Speciality Savings Account

• Kids’ savings accounts
• Custodial savings accounts
• Student savings accounts
• Christmas Club savings accounts
• Home down payment savings accounts
• 529 college savings accounts
• Traditional and Roth Individual Retirement Accounts
• Health Savings Accounts (HSAs)

Best for

People who want accounts customized to unique savings targets.

Pros

• They can help you save money for a variety of specific financial goals
• Specialty accounts can earn interest to help you grow your money, just like other savings accounts
• Depending on the account, you may pay low or no monthly maintenance fees

Cons

• Some specialty accounts, such as IRAs, 529s, and HSAs, have strict tax rules for making withdrawals
• The interest rates you earn for things like child savings accounts, student accounts, or Christmas Club accounts may be lower than high-yield or even regular savings accounts
• Specialty accounts may have restrictions on who can open them

These were the 6 Types of Savings accounts. Now that you have this information, you can learn more about savings accounts. We have provided the same below.

Once you understand the Types of Savings Account, you should also learn the time value of money.

Documents Required to Open a Savings Account

Customers wishing to open a savings account must submit the documents listed below when submitting an account opening application form to the bank branch. This is valid for all types of savings accounts.

• Proof of Identity – Passport, Voters’ ID, Aadhaar card, etc.
• Proof of address – Passport, Driver’s license, Aadhaar card, etc.
• PAN card copy
• 2 passport size photographs

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