Which Savings Account Is Best for You?

When it comes to saving your money, you have many different options available to you. There are savings accounts designed with specific saving purposes in mind. In addition, when you begin to build wealth and really grow your money, you should look at investing tools as an alternative to lower interest rates offered by traditional savings accounts. You will not be able to grow wealth by just saving your money, you need to invest it. It is important to steer clear of savings bonds for most of your investments, but you should consider other options like mutual funds. 

Basic Savings Accounts

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The first type of account is a basic savings account. These accounts offer lower interest rates and have low minimum balance requirements than the other savings tools. It offers easy access to your money. This is a good account to start saving money. It is also a good place to put your emergency fund. You can shop around at different banks to find a good interest rate, and you may also consider credit unions or online banks. If you go with an online bank make sure that it is FDIC certified. The Christmas savings accounts is usually a basic savings account. It is good if you know you will need the money in the next year and you do not want to have it locked down in a different type of account. 

  • This account gives the easiest access to your money.
  • It offers the lowest rate of return.
  • Consider looking online to see if you can find a higher interest rate.
  • This may work well for your emergency fund.

Certificates of Deposit (CDs)

These accounts offer a higher interest rate, but the money is more difficult to access. You lock in the money for a set length of time, and you will lose the interest your earned or receive another penalty if you pull the money out early. The rate of return is usually just a bit higher than a money market account. It is a safe investment since the funds are guaranteed, and although it is not a great way to grow your money, it is a way to keep it safe. This is a good strategy for longer-term savings that you want to protect, like your ​down payment for a home. However, you may be able to earn a higher interest rate somewhere else. 

  • This account limits your access to your money for a set period of time.
  • The rates may be higher than a savings account but are dependent on market conditions.
  • Carefully read any agreements before you sign up for the account so that you understand the rules about withdrawals and rolling it into a new CD.
  • Online banks may offer higher rates. 

Mutual Funds

Mutual funds are an investment tool to consider once you are ready to begin investing your money. They allow you to begin to grow your wealth. The funds are not guaranteed, and you do run the risk of having losses if you choose to use this tool. Mutual funds are a safer way to invest your money since it spreads the risk of loss over several different stocks. You should look for mutual funds that are spread over a wide variety of stocks and that have a good track record. It is important to invest in order to build wealth. Mutual funds are better for long-term savings since you need to be able to let them recover if the market decides to dip. Be sure to keep this in mind when you start saving money in mutual funds.

  • This method has the most risk, but mutual funds are a safer way to invest.
  • Be sure to review the fees for the mutual funds before you choose one.
  • Find out the average rate of return on the mutual funds and look at more than just the last year or two to see how well the fund is managed.
  • This is for long-term savings. You will need to be able to give the time for market to recover if there is a dip. If you need the money within five years continue looking for another option for your savings.

Money Market Savings Account

A money market savings account is another savings account that you can get through your bank. The funds are still guaranteed by the FDIC. It offers a higher interest rate, but it has a higher minimum deposit requirement. It also has fairly easy access, although some banks may limit the number of transaction per month on this account. It is a good place for your three to six-month emergency fund. This only works if you can maintain the minimum balance requirements set by your bank. If you drop below, you usually end up paying a service fee and forfeit interest earned during the month. 

  • Be sure you understand the requirements for accessing the money.
  • An online account may have higher interest rates available.
  • This is a good option for a large emergency fund or savings that you will need in five years.