We all know saving money isn’t easy. It’s something that most of us probably wish we were a little better at. More often than not though life can get in the way. Bills, groceries, activities for the kids, or even an unexpected PCS move, sometimes it feels like there’s nothing left to go into savings. Learning about the different types of savings accounts can help you get started with a solid strategy for saving money.
There are three main different types of savings accounts: traditional savings accounts, money market accounts, and certificates of deposit (CDs). Learning about the different types of accounts, how they work, and what to keep in mind when choosing that account type is important to know, especially when you have a particular goal in mind.
Most of us are already familiar with savings accounts. If not, let’s go over some of its main features. Savings accounts let you securely set your money aside for safekeeping. Many of like to use them for rainy days or emergencies! You can also earn interest by leaving your money in a savings account, though the interest may not be a very large percentage of your deposit.
Savings accounts are vastly different from checking accounts because they typically aren’t linked to any method of payment like a debit card, however, a savings account can be linked to your checking account to help protect you from overdraft penalties. That way, if your checking account balance is too low, your savings account can then kick in and make an automatic transfer into your checking account, preventing you from having to pay overdraft fees.
So why put your money in a savings account? It can encourage you to touch your money as little as possible, allowing your money to grow. That means the money is there when you need it to use when absolutely necessary.
Money Market Accounts
Another popular type of savings’ account is a money market account. Money market accounts have some similarities with traditional savings accounts and checking accounts. For some people, money market accounts are the best option because they can provide the best of both worlds.
Like a savings account, money market accounts can earn interest. But one of the main benefits of a money market account is the fact that they often earn higher interest than traditional savings accounts. Keep in mind though, money market accounts often have higher balance requirements in order to earn that higher rate!
Similar to a checking account, money market accounts may give you the option to get a debit card, giving you easier access to your funds.
Certificates of Deposit (CDs)
The last type of savings account is a Certificate of Deposit, or CD. CDs have some similarities to money market accounts. For example, they both have a minimum deposit or balance requirement.
However, the biggest difference between CDs and the other types of accounts is that they have what’s called a “maturity date.” That means you have to leave your funds in the account until the CD is considered mature, which happens on a specified date. If you don’t, you’ll have to pay an early withdrawal penalty.
In most cases, maturity dates for CDs are somewhere between three months and five years. The longer you leave your money in the account, the more interest you’ll be able to earn.
CDs may actually be able to earn you a higher interest rate than the other two types of savings account we’ve mentioned. When you commit to leave your money in the CD for a specific period of time, you’re essentially allowing the bank the option to borrow your money during that time. The tradeoff is higher interest for you, but also restricted access to your money.
A CD might be right for you if you want to earn some interest on your savings in a low-risk way. A CD is best when you don’t need immediate access to the funds you deposit.
Thing To Keep In Mind About All Three Account Types
So, what do all of these accounts have in common? All of them pay interest, although the amounts may vary and depend on different factors. One important thing to know is that they are all insured by the Federal Deposit Insurance Corporation, or FDIC, up to the maximum amount allowed by law. That means there’s relatively low risk when it comes to saving your money in any of these account types.
So how should you choose which type of account is right for you? Be sure to keep this in mind: there’s no need to choose just one! You can have all three types of accounts open at the same time. Depending on your personal situation, having money saved in multiple types of savings accounts could be a useful strategy that helps you achieve your financial goals!
How To Get Started Savings
MilHousing Network is a proud partner of At Armed Forces Bank. Armed Forces Bank works hard to be your go-to partner when it comes to your financial goals. They are happy to answer your questions about different savings account types, and we’ll even help you set up the account(s) that’s right for you.
Want to learn more?! Check out Armed Forces Bank’s savings account options.
This article was originally published by Armed Forces Bank.