7 Different Types of Savings Accounts

Q: Which type of savings account pays the most interest?

High-yield savings accounts at credit unions and online banks often offer the most competitive annual percentage yields (APYs).

Q: Is it better to have a savings account or invest?

Both saving and investing are important. Saving accounts work well for financial goals you want to reach in the next few months or years, whereas investing (which involves risk) can work well for medium- to long-term savings goals.

Q: How much should I keep in my savings?

A general rule of thumb is to have at least three to six months’ worth of living expenses saved up to cover emergencies, such as an unexpected medical bill or immediate car repair. A savings account is also helpful for covering any financial goals you want to achieve over the next two years. For longer-term goals, you may want to consider investing your money in the market. Though it carries more risk than keeping cash in a savings account, investing has the potential to offer much greater reward.

Bob HaegeleUpdated March 6, 2023

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

A savings account can be a great place to stash cash you don’t need right away. These accounts pay interest and can help you work towards short-term financial goals like building an emergency fund, going on vacation, or making a downpayment on a home. But with all the different types of savings accounts available these days, which one should you pick? It depends on your needs and goals. Here’s a look at seven common kinds of savings accounts to help you find the right place to grow your savings.

What Is a Savings Account?

A savings account is an interest-bearing account that is designed for saving (and growing) your money rather than spending it. You can open a savings account at the same bank or credit union as your checking account, or explore many of the online-only banks now available. You can typically link your savings account to your checking account for easy online transfers even if they are at different institutionsInterest on a savings account is expressed as an annual percentage yield (APY). This is the rate you can earn on an account over a year and it includes compound interest (which is the interest you earn on interest added to your account throughout the year).The funds in a savings account are liquid. However, they are generally less accessible than the money in a checking account. You can’t write checks or use a debit card to draw money from your savings account. And, often, you are limited to six withdrawals per month. While the federal rule that limited savings accounts withdrawals to six per month was lifted in April 2020, many institutions still enforce the limit and will charge you a fee if you exceed the cap. (Withdrawals or transfers made at ATMs do not count toward your monthly limit.) Recommended: Savings Account vs Brokerage Account

Importance of a Savings Account

A savings account is important to have because it keeps your savings separate from your everyday spending (making it less likely that you’ll spend it), while still keeping it accessible. These accounts also keep your money safe. Unlike investing, you generally can’t lose the money you put in a savings account. The Federal Deposit Insurance Corporation (FDIC) or National Credit Union Association (NCUA) insure savings accounts up to $250,000 per account holder, per institution, should the bank or credit union fail.Savings accounts can be ideal for short-term savings goals, like building a fund you can tap for emergencies or paying for a large upcoming expense, such as a car or a wedding. However, APYs can be relatively low. Even the top high-yield savings accounts may not outpace inflation. As a result, these accounts generally aren’t ideal for longer-term financial goals, such as saving for retirement or a child’s college education.Recommended: How Much Does the Average American Have in Savings?

Savings Account vs Checking Account

Both checking and savings accounts are deposit accounts held at banks and credit unions. And both are FDIC- or NCUA- insured. But there are some key differences between these two types of accounts.Unlike savings accounts, checking accounts are highly liquid accounts meant to be used for everyday money management. You typically get a debit card and checkbook with a checking account and can make an unlimited number withdrawals and deposits each month.Another key distinction is that checking accounts typically earn very little or no interest. As a result, checking accounts tend to be better for regular transactions, such as purchases, bill payments, and ATM withdrawals, while savings accounts are better for storing money for short-term savings. Here’s a look at how these two types of accounts compare side-by-side.

	Checking	Savings
Purpose	Daily spending	Short-term saving
Interest	None or nominal	Earns interest
Debit card	Yes	No
Transaction limits	None	Withdrawals may be limited to six per month

7 Types of Savings Accounts

There are many types of savings accounts available and each has its advantages and disadvantages. One or more of these accounts might be ideal for you.

1. Traditional Savings Account

Traditional savings accounts are offered by banks and credit unions with brick-and-mortar locations. People often open these accounts at the same institution where they have their checking accounts. These accounts are typically FDIC insured, and withdrawals are usually limited to six per month.Traditional savings accounts earn interest, but the APY is often lower than it is on other types of savings accounts, and they might also have a monthly maintenance fee. Banks and credit unions typically allow you to manage your account online, via mobile banking, by phone, or at an ATM or branch.Recommended: A Guide to Passbook Savings Accounts

2. Online Savings Account

Online-only banks also offer savings accounts. While these banks don’t have physical locations, online savings accounts usually come with all the same features as traditional savings accounts, including FDIC insurance and convenient access to fee-free ATMS. It’s typically easy to manage your account online using your computer or mobile device. Online banks generally have lower overhead than brick-and-mortar institutions. As a result, they can pass that savings on to their customers in the form of higher APYs and low or no fees. As with traditional savings accounts, online savings accounts are usually limited to six withdrawals per month.

3. High-Yield Savings Account

High-yield savings accounts, typically offered by credit unions and online banks, are accounts that pay a substantially higher APY than the national average of traditional savings accounts. They typically also have low or no fees. Other than that, these accounts function like regular savings accounts. They are typically FDIC-insured, and you can make withdrawals and transfers as needed, though your bank may charge a fee if you make more than six withdrawals per month.Recommended: High-Yield Savings Accounts vs Certificates of Deposit (CDs)

4. CD Account

A certificate of deposit (CD) is a type of savings account with a fixed interest rate that’s typically higher than a regular savings account. In exchange for the higher APY, you agree to leave the money untouched for a set period of time, such as six, 12, or 18 months. If you withdraw your funds before the CD matures, you’ll typically pay a penalty.CDs are available at banks and credit unions and are usually federally insured. When you open a CD, you lock in your APY. That means even if the market rates go down, you still get the higher rate. If market rates go up, however, you won’t get the higher rate. Recommended: Comparing No-Penalty CDs vs Savings Accounts

5. Cash Management Account

A cash management account (CMA) is a cash account that offers features similar to a savings, checking, and investment account in one product. CMAs are typically offered by nonbank financial service providers, such as investment firms and robo-advisors. CMA providers usually rely on a bank or network of banks to hold your cash deposits. This allows your money to earn interest and receive FDIC insurance protection.The specific features of a CMA vary depending on the financial institution. For example, some CMAs offer check-writing privileges, ATM access, debit cards, and online payment services. Then there are also CMAs that include a brokerage component, where you’re able to transfer money from the cash account directly into your investment accounts (such as a retirement account).

6. Money Market Account

Money market accounts are savings accounts that offer some of the features of checking accounts, such as check-writing privileges and debit cards. You can find money market accounts at credit unions and traditional and online banks. These hybrid accounts typically pay a higher APY than regular savings accounts, but often come with higher initial deposit requirements, along with higher ongoing balance requirements to avoid fees. Like other savings accounts, your money is typically insured and you may be limited to six withdrawals per month.

7. Health Savings Account

A health savings account (HSA) is a savings account that is designed for one purpose — to save for medical expenses that are not reimbursed by high-deductible health plans (HDHPs). You must be enrolled in a HDHP to open an HSA, and you and/or your employer can contribute to the account. You can typically invest all or some of the funds held in an HSA.HSAs offer tax advantages. Your contributions reduce your taxable income, and the money isn't taxed while it’s in the account — even if it earns interest or investment returns. As long as you use your HSA funds for qualified medical expenses, you won't owe taxes when you take money out of the account.These accounts also have contribution limits — $3,850 for individuals for 2023 and $7,750 for families. Those age 55 and over can contribute an additional $1,000.

Finding the Right Savings Account

The best savings account for you will depend on your needs and financial situation. Here are some criteria you may want to consider as you compare your options.

Interest rates When comparing interest rates from different financial institutions, you’ll want to focus on APY. This number tells you how much interest a bank account earns in one year, including the effects of compounding. In savings accounts, interest may be compounded daily, monthly, or quarterly. The more frequently interest is added to your balance, the faster your savings will grow. APYs allow you to compare accounts apples to apples.
Fees Savings accounts may have monthly maintenance fees or penalties if your balance falls below a certain amount. These fees can eat into the interest you earn, so you’ll want to keep them to a minimum.
In-person vs online-only If you want to have the option of making in-person transactions with a teller or meeting with an account manager face-to-face, you might prefer a traditional savings account or money market account. If you love the convenience of mobile and online banking and don’t care about branch access, a high-yield savings account with an online bank could be a great choice.
Withdrawal restrictions While banks are no longer required to limit the number of monthly transactions, many have maintained the six-transaction limit, while others have increased it. It’s worth finding out what the institution's policy is on transaction limits.
Minimum balance requirement You’ll also want to take note of how much you need to keep in your account to earn the stated APY. Some money market and high-yield accounts will tie rates to your balance, while others offer the same APY across all balances. You'll want to make sure you can comfortably meet any minimum thresholds, so you’re able to get the interest rate you're expecting.
Access to your money Can you link the savings account to your checking account to easily transfer funds between accounts? Will you have access to conveniently located (and fee-free) ATMs? Can you make deposits via a mobile app? Think about how you will ideally want to access the money in your savings to make sure the account will be easy and convenient for you to use.

The Takeaway

Having cash in the bank prepares you for the unexpected (like a job loss or major car repair). It can also help you reach your near-term financial goals, whether it’s buying a home or paying for a wedding. The best savings accounts offer high APYs, charge few or no fees, and provide the accessibility you need.If you’re not sure where to start your savings account search, Lantern by SoF can help. With our online banking marketplace, it’s fast and easy to compare high-yield savings accounts based on APY, fees, and balance minimums.Lantern can help you compare online savings accounts and find today’s best rate.

Frequently Asked Questions

Which type of savings account pays the most interest?

Is it better to have a savings account or invest?

How much should I keep in my savings?

Photo credit: iStock/Ridofranz

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About the Author

Bob Haegele

Bob Haegele is a personal finance writer dedicated to helping others improve their finances, build wealth, and establish a stable, long-term financial plan. His expertise extends to topics such as investing, student loans, and credit cards, and his work has appeared on outlets such as Business Insider, Bankrate, GOBankingRates, and CreditCards.com.

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