Types of Savings Accounts: 

As with most financial services, there are multiple options, and the best one for you depends entirely on your intentions. We’ll break down the two main categories and most popular accounts within them. 

Educational Savings Accounts:

529 College Savings Plan

A college savings plan that allows your family to put money in a tax-deferred account that can go towards various K-12 and college educational expenses. 

529s invest your after-tax contributions in mutual funds or similar investments. The value of the 529 depends on the investment’s performance in the market. 

The plan comes with tax and other financial benefits. While nearly every state has a 529 college savings plan available, you can invest in any state’s plan, not just your own. 

Coverdell ESA

A Coverdell Education Savings Account (ESA) is a special type of tax-deferred college savings account where individuals fund the educational expenses of a designated beneficiary. 

Benefits include tax-deferred growth and tax-free distributions for qualified expenses. Money can only be deposited before the beneficiary’s 18th birthday and can only receive a total maximum annual contribution of $2,000.

Personal Savings Accounts:

Deposit Account

Also known as a transactional account, this option is ideal for depositing your money and earning a bit of interest on it. Typically banks require a minimum deposit as well as a minimum balance. These are great, low-risk options that offer ease of transferring funds. 

Money Market Account

Similar in many ways to a deposit account, money market accounts usually pay out higher interest rates, but they also have a higher buy in for the initial deposit. Money markets also have high liquidity, with the bonus of being able to write checks against them. 

The Benefits of a Savings Account

Let’s go over the many benefits of opening up a savings account. 

Save Money, Make Money: The first, and perhaps most obvious, benefit is that your money won’t just sit there gathering dust–it’ll earn interest. 

Federally Insured: Plenty of people are worried about their money being stolen. Thankfully, with a savings account, your money is insured up to $250,000 by the federal government.  

Create a Cushion: It’s always a good idea to create some cushion, that way you’ll be able to react if you ever need sudden funds. Maybe it’s a big purchase you’re saving up for, or a rainy day medical emergency fund, or you find yourself without a job. Savings can help fund life’s twists and turns. 

Low Risk: Given its insurance and relatively low interest rate payout, savings accounts are an ideal low-risk investment option. 

No Withdrawal Penalties: Unlike some other accounts, there aren’t withdrawal fees for taking out your money. If you need it, it’s yours to access. Plain and simple. 

How to Pick the Best Savings Account

There are many types available from a multitude of providers–so first thing’s first, you should plot out what exactly you are saving for.

Here are some things to keep in mind while you shop around:

Minimum Balance: Many providers require a base deposit in order to open an account. It can range from $25 to $1,000 and everything in between. 

Interest Rate: How much will you earn on the money you deposit? Some providers will increase the rate as you put more money into the account. 

Maintenance Fees: Traditional brick and mortar banks will typically charge monthly fees for the effort of keeping your money. Some online providers won’t charge this. 

Ease of Transfer: If you have a savings and checking account at the same bank, it’s usually pretty easy to transfer funds between the two. 

Make an Informed Decision

When it comes to anything related to finance, it’s key to do your research and make a plan. The same is true for college savings accounts.