You are finally in a position to save a little money each month and open a savings account. You want to have the best return on your investment, which means finding the account with the highest interest rate. However, before you find the account with the best rate, you need to determine which type of account works the best for your situation. Can you open with a large balance? Will you need access to the funds? Can you keep the money in an account over a long period? Here are three of the most common types of savings accounts, with specific features and requirements:
Deposit Savings Accounts – This is the most common type of savings account most financial institutions and online-only banks offer. You can usually make up to six transfers or withdrawals per month without limitations or fees. Because these accounts permit low opening balances and allow transfers and withdrawals, the interest rate is generally lower than other savings account options, although usually higher than an interest-bearing checking account. Many banks offer High Rate or High Yield savings accounts, that can vary by minimum deposits and balances, but usually pay a much higher yield on money.
Money Market Accounts – Also called MMDAs, these function much like a deposit savings account, with some banks offering checking account features like check-writing and ATM access for withdrawing cash. The difference is that you generally earn more interest on these accounts. To receive a higher interest rate, you typically have to carry a higher balance. There could be account fees or a loss of interest-earning if you fall below the minimum balance. MMDAs should be an option only if you know you can maintain the high balance requirement.
Certificates of Deposit – CDs usually offer the highest interest rates among savings accounts, but they require that your funds be held for a specific term without withdrawal. Withdrawing the money before the term ends will result in having to pay a penalty or forgoing part of your interest earnings. If you are considering a CD, be sure you can part with your money for an extended period.
Selecting the best account with the highest interest rate means you need to answer these questions:
- How much money do you have to open the account?
- How large of a balance can you maintain over the life of the account?
- How frequently or if ever will you need to access the funds?
Once these questions are answered, you should have an easy path to choosing the savings account that is right for you. And as your savings needs and requirements change over the years, you can adjust accordingly.
If you are ready to open a savings account, NASB has options for you. You can also call us at 800-677-6272 with your questions or to get started.