There are different types of savings accounts. Savings accounts play a crucial role in personal finance and building wealth. Here is an introduction for singles on the different types of savings accounts.
Introduction For Singles On The Different Types Of Savings Accounts
What Is A Savings Account?
You can earn interest with the money you deposit in your savings account at a financial institution. A savings account is a good choice to leave cash for your short-term needs. There are different types of savings accounts.
A savings account can accrue interest daily, monthly, quarterly, semi-annually, or annually. You will want to check with the financial institution to understand how often it will compound interest.
You will always want to check with the financial institution where you are saving your money to ensure you are not penalized if you exceed their minimum amount.
A savings account is best used for short-term to medium-term financial goals.
Standard Savings Account
You can open a basic savings account when you open a checking account at a bank. A regular savings account will pay you less than other options. But you can automatically set up your checking account to send money to your savings account each month. This is an easy way to build up your savings.
You can keep three to six months of money in a regular savings account. This can help you to cover your everyday financial expenses in your checking account.
High-Yield Savings Account
A high-yield savings account provides a higher interest rate than a standard one. A high-yield savings account can pay you up to twelve times more than a standard one. The bottom line is you will earn more interest by putting some of your money away in a high-yield savings account.
A high-interest savings account is an excellent choice for saving your emergency fund money. This is because it earns you higher interest. It is recommended to have a minimum of $10,000 for an emergency fund. You can tailor your emergency fund goal using Nerd Wallet’s emergency fund calculator.
Money Market Account
A money market account is yet another type of savings account. A financial institution may refer to the account as a money market account (MMA) or a money market deposit account (MMDA).
Money market accounts also offer other features that a regular savings account does not provide. These features include higher interest rates, check-writing, and debit cards.
Certificate of Deposit (CD)
Another savings tool at your disposal is the certificate of deposit (CD). A certificate of deposit earns interest on an agreed-upon percentage rate between you and the financial institution. You cannot touch the money in a CD until maturity, or you will be penalized. The tradeoff for a higher interest rate is less liquidity compared to a savings account.
A certificate of deposit can range from seven days to a few years. The interest rate that is offered will vary for each term length. You will want to research by looking at financial institutions where you live and online to find who provides the best rates and fits what you are looking for with a certificate of deposit.
You can make it a habit to save a certain percentage of money each month to build up your savings accounts. The 50/30/20 budget recommends saving a minimum of twenty percent each month. Saving is a financial tool that can help you deal with financial emergencies and invest in other assets.
Once you have saved enough money, you can invest money in:
- The stock market.
- Real estate.
- Start a business.
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You have many choices when it comes to savings accounts. It ultimately depends on your financial goals and where you are in your financial journey.