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Savings Options

Not all savings accounts are the same. Different banks offer different interest rates. And individual banks typically offer a number of savings accounts options to choose from.

Before opening a savings account it's a good idea to figure out how you'll be using it. Ask yourself:

  • How long you'll be keeping your money in the account.
  • How often you'll want to withdraw money.
  • How much money you'll keep in the account.

All of these factors can have an impact on how much interest you can earn. A simple rule to keep in mind is that time is money. The longer you're willing to leave your money alone in an account the higher interest you're likely to earn. Similarly, banks tend to offer higher interest if you're willing to keep a minimum balance. These can range from $100 to thousands of dollars.

Types of savings accounts

While there are many different savings options available, they all fall into four main categories.

  • Basic bank savings accounts offer the lowest interest rates, usually about 2%. They have few restrictions on access to your money, and they tend not to require minimum balances.
  • High yield savings accounts are like basic accounts, but they have more restrictions on how often withdrawals can be made and typically require a minimum balance. These accounts may offer 3 or 4% interest.
  • Money market accounts are like high-yield accounts, but they're tied to federal market indicators, such as the prime interest rate.
  • Online savings accounts are a lot like basic bank accounts, but they offer higher interest rates because they operate online and don't have the overhead that standard banks have.
  • Credit Unions. These are like banks, but they're owned by their customers. They tend to offer higher interest on savings.

If you don't mind leaving your money alone for a longer period of time - from several months to several years - consider taking out a certificate of deposit, or CD. These often offer the highest interest of any savings option a bank allows.

Unlike regular bank accounts, you can't withdraw your money whenever you want - not without paying a steep penalty. But they come with no risk and no fees.

There are several kinds of CDs:
  • Stock-indexed CDs are based on the stock market.
  • Callable CDs have higher rates and are long-term, as long as 10-15 years. However, the bank may "call" the account if interest rates drop.
  • Global CDs are tied to currency rates.

Keep an eye out for promotional CDs. Banks sometimes offer these as a way to lure new customers with high interest rates.