7 types of savings accounts you should know

Savings accounts allow you to safely store your money while earning interest on it over time. They’re an important component of your overall financial plan, specifically designed to help you safely and steadily achieve your financial goals. 

Saving money regularly in a savings account can help you make progress toward a number of goals, such as a down payment on a home or a secure retirement. A savings account can also serve as your emergency fund when unexpected expenses like home repairs or medical bills pop up. Different types of savings accounts can help you meet different goals, however, and you can even use multiple savings accounts to keep them all on track. 

But how do you know which types of savings accounts make the most sense for your life and your goals? The first step to figuring that out is to learn more about the seven options and how each one can fit into your financial plans. 

Online savings account

As the name implies, online savings accounts offer a digital account that can be accessed through your computer, phone, or tablet. Without the overhead costs associated with brick-and-mortar banks, these accounts can provide customers with higher interest rates and other benefits. Simply put, online savings accounts may provide a safe and easily accessible way to build up your emergency fund and put money toward other goals.

Benefits of online savings accounts

• They may be FDIC insured.
• They typically offer higher interest rates than traditional savings accounts. For example, the Discover^® Online Savings Account features rates more than five times the national average.¹
• They often have lower fees and smaller minimum balance requirements than traditional savings accounts. (For example, the Discover Online Savings Account has no monthly fees and no minimum opening deposit.)
• Features can include robust mobile banking capabilities and 24/7 access to your accounts.

Other considerations

• Some online banks don’t have dedicated ATMs, which may result in ATM fees. However, online banks like Discover partner with nationwide networks for convenient, no-fee ATM access.

Traditional savings account

Traditional savings accounts typically offer brick-and-mortar bank branch locations where you can speak in person with a representative during bank hours. However, interest rates offered for traditional savings accounts can be less competitive than the typical interest rate for online savings accounts. 

Benefits of traditional savings accounts

• They may be FDIC insured.
• You can walk into a bank branch for face-to-face customer service.
• Dedicated ATMs may not charge ATM fees.

Other considerations

• Bank branches have limited operating hours, so they’re not always open when you need them.
• It takes more time to visit a branch than to bank online.
• They typically have higher fees and offer lower interest rates than online savings accounts.

High-yield savings account

High-yield savings accounts offer significantly higher interest rates than the national average, so your money can grow more quickly. What’s more, virtually all high-yield savings accounts are also online savings accounts, which means you can manage your money from your phone or other device at any time. These accounts work well for emergency savings, big-ticket purchases like a home theater, and longer-term savings goals like buying a car. 

Benefits of high-yield savings accounts

• They may be FDIC insured.
• Higher interest rates allow you to accelerate earnings.
• Easy access to your money when you need it.

Other considerations

• Some banks have minimum deposit requirements for high-yield savings accounts.
• Make sure your high-yield savings account doesn’t include fees that can eat into your interest earnings.

Money market account

Money market accounts combine some of the benefits and functionality of checking and savings accounts. They pay interest like savings accounts and, in some cases, can offer debit cards and checks like checking accounts. Some, such as the Discover Money Market Account, offer higher interest rates when the account balance is over a certain amount. Money market accounts are great for stashing money so it can grow over time while still providing access to the funds. 

Benefits of money market accounts

• They may be FDIC insured.
• You have easy access to your money when you need it. 
• They can offer competitive interest rates, though often not as high as online savings accounts.

Other considerations

• They may require a higher minimum deposit to open the account, sometimes as much as $5,000 or $10,000. (There is no minimum deposit required to open a Discover Money Market Account. The account must be funded within 45 days of account opening.)
• The number of withdrawals and transfers allowed by your financial institution may be limited, so check for any account restrictions.

Certificate of deposit (CD)

Certificates of Deposit offer a guaranteed, steady interest rate on the money you agree to leave in the account for a specified term, usually ranging from three months to 10 years. If you don’t require access to your funds during the CD term and you’re looking for a secure way to increase your savings, these accounts are ideal. Be sure to understand how CDs work, so you can use them to enhance your savings over time.

Benefits of CDs

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• You often earn a higher interest rate with a CD than with a savings account. 
• Your rate is locked in and guaranteed for the full CD term, no matter what happens in the markets.
• CDs may be FDIC insured. 

Other considerations

• CDs often have higher minimum deposit requirements than savings accounts. (There is no minimum deposit required to open a Discover CD. The account must be funded within 45 days of account opening.)
• If you take the money out before the CD term ends, you may face early withdrawal penalties. For that reason, savings accounts may be better options for emergency funds.

Individual Retirement Account (IRA) CD

Owning a CD within your IRA gives you the best of two worlds: the high interest rate of a CD with the tax advantages of an IRA. That adds up to a bigger win for your long-term financial planning. IRA CDs can give you peace of mind knowing that your money will be there for you in the future, and they also offer a way to reduce risk while living in retirement. 

Benefits of IRA CDs

• You receive guaranteed returns on your money.
• Taxes on earnings are deferred, so you can grow your savings faster. (Make sure you know the difference between Traditional IRAs vs. Roth IRAs: Traditional IRAs allow you to deduct your contributions from your taxable income now, but you have to pay taxes on distributions in retirement. Roth IRAs allow you to contribute after-tax funds to your account now, and you don’t have to pay taxes on distributions in retirement.)² 
• They may be FDIC insured.

Other considerations

• If you take the money out before the CD term ends, you will usually face early withdrawal penalties.
• Taking withdrawals from retirement accounts before age 59½ can result in a tax bill and IRS penalties.²

IRA savings account

An IRA savings account combines the security and steady earnings of a savings account with the tax benefits of an IRA. Whether you have a Traditional IRA or a Roth IRA, your earnings in an IRA savings account grow as your money compounds, allowing you to build a larger nest egg without risking it in the stock market. As a result, it can be a convenient spot to park rollovers, like a 401(k) from an old job, or to safely grow your money while in retirement.

Benefits of IRA savings accounts

• Your IRA savings account may be less affected by changes in the market.
• You can move money in and out of it—just be sure to check with your bank about any withdrawal limits. 
• They offer dependable, tax-deferred growth.
• They may be FDIC insured.

Other considerations

• Taking early withdrawals from retirement accounts can result in a tax bill and IRS penalties.²
• Some banks may charge monthly maintenance fees. 

Choose the right savings accounts for you

Now that you know all about the different types of savings accounts, you can figure out which savings accounts best suit your goals and where to open a savings account for yourself. 

Once you’ve made those decisions, you’ll set up your savings accounts. Though there may be slight differences, most banks have similar steps for how to set up a savings account:

• Complete an application that includes personal information such as your address, phone number, and Social Security number.
• Select the type of account you want to open.
• Deposit money into the account.

There’s no limit on the number of savings accounts you can have, so you can even use different types of savings accounts to customize your personal financial plan.  

If you’re ready to take the next step toward a more secure financial future, check out the benefits of a Discover Online Savings Account today.

Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third party or information.

¹ The Annual Percentage Yield (APY) for the Online Savings Account as of XX/XX/XXXX is more than five times the national average APY for interest bearing savings accounts with a balance of $500 as reported by Curinos as of XX/XX/XXXX. National average is based on information regarding the top 50 banks (by deposit size) and may not include information from variations in regional pricing at such banks or information from products that may not be widely available to their customers. Rates were obtained from Curinos, who relies on the data from the banks it tracks and such information cannot be guaranteed. APYs are subject to change at any time.

² The article and information provided herein are for informational purposes only and are not intended as a substitute for professional advice. Please consult your tax advisor with respect to information contained in this article and how it relates to you.