A simple guide that shows which savings account might be the best for you

Once you look at your expenses versus your income and see a surplus, it’s time to start thinking about saving. “That can mean an account that’s easily accessible, easy to use, and actually bearing interest,” says Ryan Viktorin, vice president and financial consultant at Fidelity Investments. That way, the money that you’ve worked hard for, starts to work for you. 

But there are several options that you’ll have to consider. That can mean looking at the fine print and understanding minimum balance requirements, fees associated with particular accounts, and interest rates. 

Here are six options to consider when opening a savings account:

1. Traditional savings accounts 

A traditional savings account is essentially a place to hold your money that earns interest. 

These types of accounts allow you to save money and earn interest on any money you deposit into it, although the rates it offers are lower—typically around 0.01%. These savings accounts are offered by traditional banks or credit unions and usually allow regular withdrawals with very few restrictions (like a monthly withdrawal limit set by the bank or credit union). 

Who it’s for: Associate financial adviser, Patrick Marcinko at Bogart Wealth says that a traditional savings account should be considered by anyone eligible for it all the way up to the wealthiest investors because it’s designed for people who need quick access to their money. But it’s typically best for individuals who aren’t too concerned about getting the best annual percentage yield (APY) because these accounts don’t offer competitive interest rates. 

Pros

• Your money is easily accessible and these accounts typically allow regular withdrawals with very few restrictions. 
• The Federal Deposit Insurance Corporation (FDIC) insures up to $250,000 in case of a bank failure.

Cons

• Your money earns lower interest, as banks or credit unions typically offer around 0.01% rates.
• There are typically monthly maintenance fees, but those can be waived depending on the bank or credit union’s requirements.

2. High-yield savings accounts 

High-yield savings accounts are a type of savings account that offers an APY that’s much higher than a traditional savings account. 

In recent years they’ve become increasingly popular as the Federal Reserve raised rates several times in its attempt to lower inflation. When the Fed raises interest rates, the APY on your savings account increases as the Federal funds rate does. These accounts are typically offered by both banks and credit unions. But despite higher interest rates, they might not be the best account for some looking to regularly withdraw money as there are usually limits. 

Who it’s for: Marcinko says that high-yield savings accounts are particularly attractive for investors looking to earn higher returns, but also for those who don’t mind online banking and don’t necessarily need to make consistent withdrawals as there are often limits to withdrawals. He says, “it’s not like a traditional savings account or a checking account where money can kind of flow in and out, it’s really more for kind of a set aside for the time being.”

Pros

• Your money earns higher interest, as rates are much higher than those offered by traditional savings accounts. Sometimes these accounts offer rates above 3%. 
• You’re less likely to be charged a monthly fee because these accounts are offered through online banks. 
• The Federal Deposit Insurance Corporation (FDIC) insures up to $250,000 in case of a bank failure.

Cons

• There’s no physical branch, so transactions are strictly done online and can take a few days. 
• There are restrictions on withdrawals, typically six times per month are allowed without paying fees, according to federal regulations.

3. Certificates of deposit 

Certificates of deposit (CDs) are a type of savings account that pays interest on a set amount of money for a fixed period of time. 

CDs offer competitive interest rates, but they’re quite different from the two types of accounts mentioned above. The biggest difference: The money must sit in the account for a set time period, that could be six months, a year, or more. If you need to withdraw your money before the term ends, you’ll most likely have to pay a penalty. 

Additionally the interest rate is fixed, so you’re locked in at that rate, whereas traditional and high-yield savings accounts have variable interest rates that can fluctuate with the market. Marcinko says they’re “back in style” now that rates are higher. CDs are typically offered by traditional and online banks and even credit unions.

Who it’s for: CDs are typically best for people who want to “lock in” high interest rates and can afford to do so by setting aside a portion of their money for a period of time. This type of account is really for people that don’t need the money and won’t need the money for the time being, Marcinko says. 

Pros

• Your money earns higher interest, as rates offered by these accounts are higher than those of traditional savings accounts.  
• Interest rates are fixed, meaning they’re locked in for the set period of time. 
• Typically there’s no monthly fees associated with these accounts. 
• The Federal Deposit Insurance Corporation (FDIC) insures up to $250,000 in case of a bank failure.
• Term options vary and can range from months to years. 

Cons

• Your money is locked in for a set period of time based on the term you choose. 
• There are penalties for withdrawing funds before your term ends. 

4. Money market accounts 

Money market accounts (MMAs) are a type of a deposit account that pay variable interest rates that can change at any time. 

MMAs are typically offered by traditional banks, online banks, and credit unions. These types of accounts are referred to as “hybrid accounts,” Marcinko says, because they often come with debit cards or checkbooks and allow regular withdrawals. 

Who it’s for: Because these accounts are a bit more restrictive than checking accounts but a bit less restrictive than CDs, Marcinko says they’re best for people that want higher interest rates but don’t want to lock in their money. Additionally, the higher the balance, the higher the interest rate, so it’s particularly suited for people with a good amount of cash on hand. 

Pros

• Your money earns interest at higher rates than traditional savings accounts. 
• Your money is easily accessible, and these accounts often come with a debit card or checkbook.
• The Federal Deposit Insurance Corporation (FDIC) insures up to $250,000 in case of a bank failure.

Cons

• Some banks charge monthly fees based on the balance amount, going over the withdrawal limit, or basic maintenance fees. 

5. Cash management accounts

Cash management accounts are non-bank accounts that are managed online and earn competitive interest rates. 

They aren’t strictly designed for savings but allow you to hold both your savings and investments. Cash management accounts are offered by online brokerages and online banking platforms, and typically have lower interest rates than high-yield savings accounts but higher than traditional savings accounts.  

Who it’s for: Cash management accounts are typically attractive for investors looking to maximize their cash with interest rates, while keeping it mixed in with their investment portfolio.

Pros

• You earn interest on money you plan to invest. 
• You have access to features geared toward both checking and savings accounts.

Cons

• You could earn more interest with high-yield savings accounts because interest rates associated with cash management accounts are typically lower. 
• These accounts are not always FDIC insured.

6. Specialty savings accounts 

Specialty savings accounts are really just accounts pegged to a certain goal, like saving for a down payment on a house, tuition payments, or retirement funds. 

Viktorin says it sometimes helps to have an account geared toward one thing instead of putting all your savings in one account—but that depends on your personal mindset. Similarly,  Marcinko says there’s a positive effect of having an account geared toward a personal goal because as the balance goes up, people tend to get more excited because it has a purpose and they’re becoming closer and closer to reaching that goal.

Who it’s for: Specialty savings accounts work for anyone looking to save for a certain goal or fund. 

Pros

• You’re saving for a specific goal instead of putting all your money into one account. 
• These accounts are typically FDIC insured. 

Cons

• Some specialty accounts have withdrawal restrictions, similar to traditional savings accounts.   
• Interest rates vary based on account type. 

The takeaway

Whichever savings account you choose, it’s a beneficial way to earn interest, avoid spending, and start saving for long-term goals or emergency funds, like buying a house or a rainy day when you need it most. Viktorin says that it can be overwhelming, so don’t be afraid to ask for help or make some calls to understand where you’re at now and how to get to where you want to be. “Be empowered to look around,” she says.