The 10 Types of Savings Accounts You Don’t Know About
There are many types of savings accounts. You might be aware of the plain vanilla savings account you can open at your brick-and-mortar local bank or credit union. But there are many other types of savings accounts that offer better interest rates and might better suit your needs.
Here are ten types of savings accounts that you may have never heard of:
1. Online High-Yield Savings Accounts
Online banks are taking advantage of the disruption of the web and creating new options for savers that pay better than traditional banks’ savings accounts. Because these banks don’t have the expenses of brick-and-mortar buildings and employees that sit down with you to open an account, they are able to pass the savings on to you in the form of higher interest rates.
You can set up the account yourself in just a few minutes and link it to your checking account so you can easily transfer funds back and forth as you need the money. Some companies will also issue cashier’s checks to pay for large-ticket items.
Most online banks carry FDIC coverage, so you are not risking your money by going online.
2. Money Market Accounts
Money market accounts are similar to regular savings accounts. They include some features of a checking account and still pay a higher interest rate. Money market accounts let you write checks and sometimes come with a debit card, but you still are limited in the number of monthly withdrawals you can make. You also are required to keep a higher minimum balance.
Funds in a money market account are invested in low-risk ventures, such as government bonds, which allows for the higher return on investment.
3. Student Savings Accounts
Many banks offer student savings accounts while you’re in school. They often help reduce the fees attached to regular types of savings accounts by waiving a minimum balance or a certain daily average balance requirement.
These are a great way to get started with saving, but they often will be converted to regular types of savings accounts when you no longer are in school. So you’ll want to watch that you don’t get socked with fees after graduation.
4. Interest Checking Accounts
Some banks, particularly online banks, offer checking accounts that pay a little bit of interest. You might need to maintain a minimum balance to avoid fees that would eat up any interest income.
5. Education Savings Accounts (529 Plans)
Also known as college savings accounts, education savings accounts differ from state to state, but they let you cover qualified higher-education expenses such as tuition, fees, and materials. They may sometimes allow you to cover room and board with the funds if the student is attending class more than half-time.
Though contributions to these accounts are not tax-deductible, the interest earned is tax-free and will not be taxed if withdrawn to pay qualified educational expenses.
6. Flexible Health Savings Plans
Often offered through your job, these plans allow you to set aside funds each year to pay for qualified medical expenses throughout the year. Your contributions are taken directly out of your taxable income.
You should have a good grasp of what your medical spending will be though, as these funds offer only a minimal, if any, carryover from year to year.
7. Certificates of Deposit
Certificates of Deposit differ from traditional types of savings accounts in that you lock your money in for a certain length of time, like six months or 18 months. The longer you are willing to commit to the investment, the higher the interest rate.
CDs can carry fixed or adjustable interest rates, often depending upon the length of the CD. Longer-term CDs might offer rates that are adjusted annually. Often these are advertised as, “if rates go up, your rates go up, but if rates go down, yours remain the same.”
If you need to cash out early, be prepared to pay a penalty.
8. Health Savings Accounts
Health Savings Accounts are available only to those who have a high-deductible health plan, but they do allow you to prepare for current or future health expenses. Unlike flexible plans, you can carry over as much money as you like in a Health Savings Account. In fact, they are often treated as part of your retirement planning because you can carry the money over until a time when your medical expenses will be much higher.
Contributions come directly from your income, and any interest or income is tax-free. You don’t pay taxes as long as you withdraw the money for qualified medical expenses.
9. Individual Retirement Accounts (IRAs)
In 2019, you can contribute up to $6,000 a year (or $7,000 a year if you are 50 or older) to an Individual Retirement Account. If you contribute to a traditional IRA, you can deduct it from your taxable income. The interest accumulates tax-free, but you do pay regular taxes when you withdraw the money in retirement. The savings come because you’re likely to be in a lower tax bracket when you withdraw the money.
10. Novelty Savings Accounts
Some credit unions and online banks allow you to set up novelty savings accounts that can be designated for a specific purpose, like for a car, a house down payment, or a wedding. The only real benefit is psychological as they are like basic savings accounts, but you can better measure progress toward your goal.
Whatever kind of savings account you are looking for, we applaud your interest in saving. Bank.com’s partners will be happy to work with you to achieve your savings goals.