Different types of savings accounts: Where should you keep your cash?

While the main function of any savings account is as a depot for your funds, there are a variety of different types of places to choose from. The right savings account for you depends on your specific financial goals. 

What are the different types of savings accounts?

Banks find all different ways to categorize savings accounts, one of the fundamental building blocks of personal finance. No matter the name, you want an account that offers high yields, few fees and deposit insurance up to at least $250,000 per depositor, per financial institution.  

Additionally, you can opt for other accounts that typically provide higher yields, but are less liquid, meaning you may have to pay a fee to access your cash eary. 

And then there are tax-advantaged accounts that will help you lessen your bill to Uncle Sam, but are designed for more longer-term financial planning than meat-and-potatoes savings accounts. 

Traditional

Best for 

A traditional savings account is ideal for savers who want to stash their cash into an insured option and don’t mind earning a relatively low interest rate on their savings. 

It’s a bare-bones place to stash your cash and build your savings. You may face monthly fees or minimum balance requirements, depending on the institution you choose. Many don’t have a competitive yield: The national average savings rate in December 2023 was only 0.46%.

How it works

You can make deposits into your savings manually, by literally depositing cash or transferring funds from another account, such as your checking. Many institutions also provide the option of automating your savings — you could schedule a portion of your paycheck to go into savings every month. 

Be aware though that savings accounts often come with a monthly transaction limit. Even though federal Regulation D, which limited savings account withdrawals to six per cycle, was lifted in 2020, some banks still impose the withdrawal limitations.  

Pros

• Easy to open. Banks usually make it simple to open a traditional savings account. 
• Physical branch options. Many financial institutions with brick and mortar locations offer traditional savings accounts. 
• Interest-bearing options available. Many traditional savings accounts offer interest-earning opportunities. 

Cons

• Relatively low yields. Traditional savings accounts tend to come with lower APYs than other options. 
• Fees. Accounts frequently have maintenance and service fees attached. 
• Withdrawal limits. Some financial institutions limit you to six withdrawals per month.

High-yield

High-yield savings accounts aren’t technically a different product than standard savings accounts. Instead, the term “high-yield” describes the hallmark feature, which is an above-average interest rate. 

Best for 

A high-yield savings account is best for savers who want to earn an above-average yield on their funds, and don’t mind banking online.

How it works

Some of the top high-yield savings accounts currently offer yields north of 5.00%, which shoots the national average rate out of the water. Although you can find some traditional banks that offer high-yield savings, such as Capital One, most are offered by online institutions. Perhaps the only downside is that these rates aren’t guaranteed; they can fluctuate over time. 

Pros

• Tap into higher yields. Earn more interest on your funds without increasing your risk. 
• Insured deposits. High-yield savings accounts offered by FDIC or NCUA insured institutions are federally insured for up to $250,000. 
• Straightforward access. You can tap into your savings without facing a withdrawal penalty. 

Cons

• Yields can fluctuate. For better or worse, the financial institution may change the offered rate without warning.
• Withdrawal limits might apply. Some banks and credit unions may limit your withdrawals to six per statement cycle. 
• Opportunity cost. Sticking all of your funds into a savings account could lead to lackluster returns when compared to an investment portfolio.

Online

Like a high-yield savings account, an online savings account is technically not a new type of account. It’s simply one that’s provided by an entirely digital financial institution. Without the overhead cost of maintaining physical locations, online banks are usually able to offer competitive yields and few account fees. 

Best for 

An online savings account is perfect for savers who want to grow their funds and are comfortable going without access to a brick-and-mortar location.

How it works

Savers can manage their funds via the bank’s website or mobile app. You can make deposits and withdrawals, see account statements and earnings all digitally. Customer support is often available by phone and chat. But you won’t have any access to in-person banking services. 

Pros

• Competitive APYs. Online savings accounts tend to have attractive yields. 
• Few fees. Accounts at digital banks often lack fees, such as monthly maintenance and inactivity fees.  
• Insured deposits. Many online banks are FDIC insured, which means your funds will be safe. 

Cons

• Rates can change. If the interest rate environment changes, the yields attached to an online savings account can change without warning. 
• Withdrawal limits may be in effect. Some online banks may still limit you to six monthly transactions.
• No in-person locations. If you prefer to conduct banking tasks in-person, an online bank will be a disappointment. 

Certificates of deposit (CDs)

CDs are a type of deposit account savers can use to grow their funds at a predetermined interest rate for a set period of time. If you are comfortable parting with easy access to your funds, a CD can help you unlock a higher interest rate for your funds. 

Best for 

A CD is a worthwhile option for savers who want to unlock competitive rates and don’t need access to the funds for the length of the selected term. 

How it works

When you open a CD, many financial institutions give you several days to fund the account. Once the account is opened, the interest rate won’t change for the duration of the term. If you need access to the funds before the CD matures, you’ll usually face an early withdrawal penalty, which is often a few months’ worth of interest. 

Pros

• Higher rates. In most cases, CDs offer a higher APY than traditional savings accounts. 
• Locked in rates. A CD comes with an interest rate that won’t change over the term, which means the returns are guaranteed. 
• Available from insured institutions. Many federally insured banks offer CDs with up to $250,000 of protection. 

Cons

• Early withdrawal penalty. If you need early access to the funds in your CD, you’ll usually have to pay a penalty of several months’ of interest. 
• Locked in rates. Locking in an interest rate can be a positive. But if inflation outpaces the rate, you’ll lose purchasing power over the course of the CD. 
• Lower potential returns than other investments. Other investments that come with more risk than a CD may also offer a higher return on your funds. 

Money market accounts 

Money market accounts offer a twist on traditional savings accounts. While you can store savings in a money market account (MMA), some MMAs offer the ability to make streamlined transactions through a debit card, electronic transfer, or check. 

Most money market accounts come with higher yields than traditional savings accounts. But like some savings accounts, financial institutions can limit the number of transactions you make each month through an MMA. 

Best for 

Money market accounts are a useful option for savers who want to earn a competitive interest rate, maintain penalty-free access to their funds, and have multiple methods available to spend funds out of the account. 

How it works

While some money market accounts don’t require a minimum balance, many require a substantial minimum deposit to get started, which could range from a few hundred to a few thousand dollars. If you sign up for an account, funding it is the first order of business. 

Once the account is funded, you can watch your funds grow with an attractive APY. If you need access to the funds, you can use one of the available methods to seamlessly withdraw funds. 

Pros

• Competitive interest rates. MMAs tend to offer higher interest rates than traditional savings accounts. 
• Protection. You can find MMAs available through federally insured banks and credit unions, which means your funds can be protected for up to $250,000. 
• Flexible access. You can access the funds at any time without a penalty. Additionally, MMAs tend to offer multiple ways to use the funds. 

Cons

• Minimum balance requirements. Many MMAs have minimum balance requirements that could be a dealbreaker for some savers. 
• Interest rates can change. The interest rate attached to an MMA can change without warning. 
• Withdrawal limitations possible. Some MMAs impose withdrawal limitations, which could limit the number of times you could access the funds per statement cycle. 

Cash management

Cash management accounts (CMAs) are primarily designed to be a holding pen for funds you plan to invest. They’re available through brokerage firms and, in general, they come with higher interest rates than traditional savings accounts and no monthly maintenance fees. Many offer debit cards and digital wallet compatibility to sweeten the pot. 

If the brokerage firm partners with a bank, the CMA is often covered by FDIC insurance. But not all CMAs are insured, so double-check the fine print before signing up.  

Best for 

A cash management account is ideal for savers who have an investment account and want another way to manage some cash.

How it works

A cash management account gives you easy access to liquid funds held on your investment platform. Depending on the account, you may be able to spend with a debit card, write checks and pay bills online. Many of these accounts offer automated investment tools, which transfer a portion of your deposits to your investment portfolio. 

Pros

• Streamlined financial accounts. A CMA allows you to manage some of your banking with your investment accounts on one platform. 
• Better yields than traditional accounts. Many CMAs offer higher yields than the national average savings account.
• Easy access. Depending on the CMA, you might be able to access funds via a debit card, checkbook, online transfer, mobile app, ATM and more. 

Cons

• Fees possible. You may find maintenance and ATM fees on CMAs.
• Changing interest rates. The interest rates aren’t set in stone. 
• Physical branches might not be available. Many CMAs don’t offer access to an in-person option to help you with banking-related tasks.

Youth and student savings

These accounts are specifically designed for children and students, offering lower fees and financial training wheels, such as withdrawal limits set by the child’s parents.   

Best for 

Parents who want their child to get comfortable with managing money should consider a youth savings account. And students navigating their finances while in school may find a lot of value from a student savings account. 

How it works

Student and youth savings accounts typically have low fees and features designed especially for those age groups — such as free debit card replacement and campus ATMs. Although it’s possible to find these accounts with an attractive interest rate, the yields are usually less competitive than you’d find with a high-yield savings account. 

Pros

• Practice money management. Opening the right savings account young can help you lay the groundwork for savvy financial management skills. 
• Interest-bearing options. Some student and youth savings accounts offer the opportunity to earn interest.
• Limited fees. Many of these savings accounts come with few fees to help kids and students get off to a good start. 

Cons

• Lower yields. Most youth savings accounts don’t come with top-of-the-market rates. 
• Training wheels may be unnecessary. Depending on your financial know-how, the training wheels that come with a student savings account may be cumbersome. 
• Different rules for each account. Parents might find different eligibility requirements for different kid accounts, which can make finding the right one a challenge.

Business savings

A business savings account is designed for small businesses rather than individuals. (Commercial accounts are for larger enterprises.)

Best for 

Owners who want their businesses to build financial assets should get a company savings account. “Generally any business besides a small side hustle would benefit from having separate financial accounts,” said Ross Loehr, certified financial planner at Raisonné & Hammer Price Corporation. 

How it works

To open a business savings account, you’ll first need a business. It could be a sole proprietorship, a limited liability company or even a corporation. The best business bank accounts offer attractive yields and limited fees. But it’s best to read all of the fine print to make sure you are comfortable. 

Pros

• Separate savings. You don’t have to intertwine your personal and professional finances. 
• Competitive yields available. Some accounts offer competitive rates. 
• Online or in-person options. You can choose to work with a bank that offers support online, in-person or a mix of both. 

Cons

• Fees. Many business savings accounts come with plentiful fees that could eat into your bottom line. 
• Transaction limits may apply. Banks may choose to impose a transaction limit per statement cycle. 
• Minimum balance requirements may apply. Some business savings accounts come with minimum balance requirements, which could have an impact on how you manage your cash flow. 

Other savings accounts

There are a slew of other financial accounts, designed to achieve particular goals, including paying for health bills, education and retirement. While not really savings accounts, these options should be a part of most people’s financial plan. 

Health savings accounts

A health savings account (HSA) is a type of savings account designed to help you cover medical expenses. In order to contribute to an HSA, you’ll need to have a high-deductible health plan, which involves a deductible of at least $1,500 for an individual or $3,000 for a family in 2023. 

If you qualify to make contributions, the Uncle Sam caps the amount at $3,850 for an individual or $7,750 for a family, as of 2023. Any contributions you make are tax-free, as are the investment growth and qualified withdrawals, which adds up to a triple tax advantage. 

Best for 

People who can handle a high-deductible health plan and want to make the most of a tax-advantaged savings opportunity that will cover medical costs.

How it works

Savers who qualify can open and contribute to an HSA each year. When you encounter a qualified medical expense, you can use the funds in your HSA to cover the cost. If you use the withdrawal for something other than a qualified medical expense, you will have to pay taxes and a 20% penalty on the amount you withdraw. 

Unlike in a flexible spending account, you don’t have to use the funds each year; they’ll stay in the account, potentially earning value until you need them. At age 65, you can take penalty-free distributions for anything you need. 

Pros

• Funds rollover. The funds you contribute to an HSA will never expire. 
• Tax-advantaged savings account. An HSA allows your contributions, investment growth and withdrawals to be tax-free, which is a triple tax advantage. 
• Retirement usage. If you have funds available at age 65, you can withdraw them penalty-free to use for any reason. 

Cons

• Contribution limits. Savers can only contribute $3,850 as an individual or $7,750 as a family, as of 2023.
• Eligibility restrictions. An HSA is only available to savers who have a high-deductible health plan. 
• Withdrawal penalties. If you need to withdraw the funds for something other than a qualified medical expense before age 65, you’ll pay income taxes and a 20% penalty on the withdrawal. 

Retirement savings

Retirement savings accounts allow you to set aside funds for your golden years. 

Two common types are Roth and traditional individual retirement accounts (IRAs). Both provide tax advantages. A Roth IRA allows you to contribute after-tax dollars, which you can withdraw tax-free after age 59.5. In contrast, a traditional IRA allows you to contribute pre-tax dollars and, when you withdraw the funds after age 59.5, you’ll pay income tax on the withdrawal. 

Best for 

Retirement savings accounts are best for savers who have the goal of a comfortable retirement. Building savings throughout your working years can help you cover the bills later. 

How it works

Most savers can contribute $6,500 to an IRA annually in 2023. If you are at least 50 years old, you can contribute up to $7,500. 

You can then invest these funds however you’d like — in stocks, bonds, mutual funds, CDs and more — to grow your money and have more for retirement.

Pros

• Tax advantages. IRAs have tax advantages that can supercharge your savings. 
• Long-term strategy. Retirement savings accounts usually have penalties for early withdrawals. 
• Accessible. Many brokerages offer IRAs and make it easy to open these accounts. 

Cons

• Contribution limits. The amount you can save within these retirement accounts is limited by the Internal Revenue Service (IRS). 
• Early withdrawal penalties. If you need to withdraw the funds before retirement, you could face a steep penalty of 10%, plus other applicable taxes. 
• Fees. Some IRAs providers impose fees that can cut into your savings. 

Education savings

Educational savings accounts, including 529 college savings accounts and Coverdell Savings Accounts, offer a way to earmark funds for future education costs and gain some tax advantages while doing so. 

Best for 

Savers who expect to pay for their child’s private school or higher education costs. 

How it works

A 529 plan is a common education savings account. Contributions can be invested and any earnings are free from federal income tax obligations. If you make withdrawals to pay for your child’s qualified higher education expenses, the entire withdrawal can be used without paying federal income tax. Your state may also allow special considerations, not subjecting earnings to income tax and allowing you to deduct contributions from your state taxable income. 

If you have funds left over in the account after paying for your child’s education, you can rollover up to $35,000 into the beneficiary’s Roth IRA. However, the initial 529 must have been open for at least 15 years and the funds you rollover must have been in the 529 for at least five years. Moreover, annual contribution limits apply.

Pros

• Tax advantages. Some education savings accounts come with federal and state tax benefits. 
• Ear-marked funds. Setting aside savings for a specific goal, like your child’s education, can help you stick to a savings plan. 
• Rollover available. If you have leftover funds, you can rollover up to $35,000 into your beneficiary’s Roth IRA, though there are requirements in place.

Cons

• Penalties on non-educational costs. If you use the funds for anything other than a qualified educational purchase, you’ll have to pay taxes on it and face a 10% penalty. 
• State tax benefits vary. Different states offer various tax incentives for savers. 
• Fees. Some education savings accounts come with fees that can impact your ability to build a sizable college fund. 

How many savings accounts should you have?

You can have as many savings accounts as you can handle.

Consider starting off with one that’s tied to your checking account so you can simply put some money aside. If that account doesn’t pay a competitive yield, then look at getting a high-yield account in which to build up a rainy day fund. 

From there, you could then diversify and set up specialty savings accounts for your health, retirement, investing, education and other needs. If things get too complicated, you could almost always transfer funds and close an account or two.

“Simplifying your financial life makes it easier to see where you stand in relation to your overall goals,” said Nick Craven, senior vice president of commercial and consumer banking at TAB Bank. 

You can use our savings calculator to help you keep track of your savings progress.

How to open a savings account

Start by determining what type of account(s) you want in your financial life. When you have an idea, it’s time to shop around. Most savers should be on the lookout for an account that balances low fees with high yields. 

Once you select an account, you’ll need to fill out some paperwork with the financial institution to officially open one. From there, it’s time to do what the account is designed for and start building a stash. 

Frequently asked questions (FAQs)

What type of savings account is best?

The best type of savings account depends on your needs and goals. Some savers will get the most value out of high-yield savings accounts offered through an online bank with the highest interest rate on the market. But others might prefer a savings account that offers in-person service options.

Where can I get 7% interest on my savings?

As of writing, very few, if any, institutions are offering 7% APY on a CD, let alone a savings account. But, you can earn a 6.17% APY on balances of up to $1,000 through Digital Federal Credit Union’s Primary Savings account.

How much should I keep in savings?

The amount you should have in savings varies based on your goals. Consider starting with an emergency savings account with enough to cover three to six months of your expenses.

What's safer than a savings account?

If you work with a financial institution that offers FDIC or NCUA insurance, your funds are safe for up to $250,000 per depositor, per account type. Some may consider a CD, which offers a locked-in rate, a safer option because you’ll know exactly how much you’ll earn in interest over a set period of time.