Saving can be a way to work toward a financial goal and ensure you have an extra cushion during a difficult time, such as job loss or unplanned home repair. But where should you keep your savings? There are a range of different savings accounts to choose from, including traditional savings accounts and high-yield savings accounts. Choosing one that aligns with your priorities can help you make the most of your savings. Keep reading to learn more about different types of savings accounts.
What is a savings account?
A savings account is a bank account used for storing your money, typically while it earns interest. A savings account can be a way to save for your next vacation or build a cushion in case of emergencies, unexpected events and unforeseen expenses. If you have a specific long-term goal such as saving for a down payment on a home, making regular contributions to a savings account can help you get there.
Traditional savings accounts
A traditional savings account is a basic deposit account offered by banks and credit unions that typically allows you to save money while earning some interest. Traditional savings accounts can give you easy access to your money and you may be able to link one to your checking account or other deposit account. Your bank may limit the number of withdrawals per month.
High-yield savings accounts (HYSA)
The main attraction of high-yield savings accounts (HYSA) is their competitive interest rates. This type of savings account is also typically found at online banks. They may offer a higher annual percentage yield (APY) than traditional savings accounts, meaning you can earn more interest on your savings.
HYSAs are often offered by online banks, so they may be a good fit if you don’t mind doing most of your banking online. As with a traditional savings account, the bank may limit the number of withdrawals you make each month.
Certificates of deposit (CDs)
Traditional certificates of deposit (CDs) are typically time-bound accounts with fixed interest rates. This means that you leave your money in the account for an agreed-upon amount of time, often a few months to a few years (called the term). During this period, you earn a set interest rate on the money in the account. Once the CD matures and the term ends, you can withdraw your savings or roll it into a new CD.
This type of account is best if your priority is earning interest and you know you won’t need to access your money right away. CDs can be found at both traditional and online banks. You will likely pay a penalty if you try to withdraw your money before the CD term is up.
Comparing savings account types
When choosing what type of savings account will work best for you and your money, comparing accounts based on some key features can be helpful.
|
Traditional savings account |
High-yield savings account |
CD |
Interest Rates |
Interest rates tend to be on the lower end and are usually variable |
Interest rates may be higher than traditional savings accounts, and they may be variable |
Fixed interest rate for the term |
Ease of deposits and withdrawals |
Typically accessible. Monthly withdrawals may be limited. |
Often offered by online banks, so there is no physical branch access. Monthly withdrawals may be limited. |
If you access your money during the term, you may pay an early withdrawal penalty |
Fees |
May have monthly maintenance fees. Bank may waive fees if you meet certain conditions, such as an average minimum balance. |
May have monthly maintenance fees. Bank may waive fees if you meet certain conditions, such as an average minimum balance. |
Typically no maintenance fees, but an early withdrawal penalty |
Factors to consider when choosing a savings account
The type of savings account you choose will depend on factors like your savings goals and how accessible you need your money to be.
If you are looking for the most accessible account for short-term savings goals, a traditional savings account might be your best bet. The interest rate may be lower than with a HYSA or CD, though. If your top priority is to grow your money while keeping it somewhat accessible, you may want to go with a HYSA or CD. For longer-term goals where you don’t need access to your money for a set period of time, you may be able to earn more interest with a CD. And, you don’t need to pick just one – you may decide to keep some money in a traditional savings account linked to your checking account, some in a HYSA and some in a CD.
Disclosure: This article is for general educational purposes. It is not intended to provide financial advice. It also is not intended to completely describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products.
