What kinds of savings accounts exist
Banks and credit unions offer roughly five main types of savings accounts, each with different rules about how much you can withdraw, what interest rate you earn, and what you need to keep in the account. The most common are regular savings accounts, high-yield savings accounts, money market accounts, certificates of deposit (CDs), and individual retirement accounts (IRAs). Each one serves a different purpose depending on how soon you need the money and how much you want to earn on it.
The main difference between them comes down to three things: how much interest the bank pays you, how easily you can take money out, and how much you have to deposit to open the account. A regular savings account at a big bank might pay almost no interest but lets you withdraw money anytime. A CD locks your money away for months or years but pays more interest. Understanding which type fits your situation means knowing what you plan to do with the money and when you might need it.
Key Takeaways
- Regular savings accounts let you deposit and withdraw money anytime but usually pay very low interest rates.
- High-yield savings accounts pay significantly more interest than regular accounts but often require a higher opening deposit.
- Money market accounts combine features of checking and savings accounts, usually with higher interest but limits on how many times you can withdraw per month.
- Certificates of deposit lock your money for a set time period in exchange for higher interest rates, and you pay a penalty if you withdraw early.
- Individual retirement accounts are designed specifically for saving toward retirement and have tax advantages, but you cannot withdraw the money without penalties until age 59½.
Regular savings accounts and how they work
A regular savings account is the most basic type. You open it with a small deposit, add money whenever you want, and take money out whenever you want. The bank pays you interest on the balance you keep in the account, though the rate is usually very low—often less than 0.01% per year at large national banks. This means if you keep $1,000 in the account for a year, you might earn less than $1.
Regular savings accounts are useful if you need to build an emergency fund or save for something in the near term and want the flexibility to access your money without penalty. The trade-off is that you earn almost nothing on your money. Most banks do not charge a monthly fee if you keep a minimum balance, though some require $25 or $100 to avoid fees. You can usually open one with just a few dollars.
High-yield savings accounts and competitive interest rates
A high-yield savings account works the same way as a regular savings account—you can deposit and withdraw anytime—but the bank pays you much more interest. Rates vary by bank and change with the overall interest rate environment, but high-yield accounts often pay between 4% and 5% per year, compared to less than 0.1% at traditional banks. On $10,000, that difference means earning $400 to $500 per year instead of $10 or less.
High-yield accounts are offered mainly by online banks and some credit unions, not by large brick-and-mortar banks. Because online banks have lower overhead costs, they can afford to pay depositors more. Most high-yield accounts require a higher opening deposit than regular accounts—often $500 to $2,500—and some have monthly fees if your balance drops below a certain level. The money is still insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000, the same as any other bank account.
Money market accounts with withdrawal limits
A money market account sits between a checking account and a savings account. It usually comes with a debit card or checkbook so you can access your money more easily than with a regular savings account, and it pays interest that is higher than a regular savings account but often lower than a high-yield savings account. The catch is that federal rules limit you to six withdrawals or transfers per month—if you exceed that, the bank can charge a fee or close the account.
Money market accounts typically require a higher opening deposit than regular savings accounts, often $2,500 or more. They work well if you want to earn some interest on money you might need to access occasionally but do not plan to withdraw from constantly. The interest rate varies by bank and by how much you have deposited. Some banks pay higher rates if your balance is above a certain threshold, like $25,000 or $50,000.
Certificates of deposit and fixed-term savings
A certificate of deposit (CD) is an account where you agree to leave your money untouched for a set period—typically three months, six months, one year, or five years. In exchange, the bank pays you a higher interest rate than you would get in a savings account. The longer you lock the money away, the higher the rate usually is. A one-year CD might pay 4.5%, while a five-year CD might pay 5.0%.
The trade-off is that if you need to withdraw the money before the term ends, you pay a penalty—usually a few months' worth of interest. So if you open a one-year CD at 4.5% and withdraw after six months, you might lose three months of interest. CDs are useful if you know you will not need the money for a specific amount of time and want a may provide rate. The interest rate is locked in when you open the CD and does not change, even if the bank's rates go up or down.
Individual retirement accounts and tax-advantaged saving
An individual retirement account (IRA) is not really a type of savings account in the traditional sense—it is a tax-advantaged container that holds savings, investments, or both. There are two main types: a traditional IRA and a Roth IRA. With a traditional IRA, you may be able to deduct what you contribute from your taxes in the year you contribute it, and the money grows tax-free until you withdraw it in retirement. With a Roth IRA, you contribute money that has already been taxed, but the money grows tax-free and you do not pay taxes when you withdraw it in retirement.
IRAs are designed for long-term retirement saving. You cannot withdraw the money without a penalty until you reach age 59½, with a few exceptions for things like buying your first home or paying for education. In 2024, you can contribute up to $7,000 per year to an IRA if you are under 50, or $8,000 if you are 50 or older. IRAs are offered by banks, credit unions, and investment firms, and the money inside can be held as a savings account, a CD, stocks, mutual funds, or other investments depending on where you open it.
Comparing the accounts side by side
The table below shows how these five account types compare on the features that matter most when you are deciding where to put your money.
| Account Type | Typical Interest Rate | Withdrawal Access | Minimum Deposit | Best For |
|---|---|---|---|---|
| Regular Savings | Less than 0.1% | Anytime | $0–$25 | Emergency funds, short-term goals |
| High-Yield Savings | 4%–5% | Anytime | $500–$2,500 | Building savings with better returns |
| Money Market | 2%–4% | Up to 6 withdrawals per month | $2,500–$10,000 | Occasional access with some interest |
| Certificate of Deposit | 4%–5.5% | Only at maturity (penalty if early) | $500–$2,500 | Money you will not need for months or years |
| Individual Retirement Account | Varies (0%–5%+ depending on contents) | Age 59½ or later (with exceptions) | $0–$1,000 | Long-term retirement saving |
Choosing the right account for your situation
The account you choose depends on three questions: When do you need the money? How much can you deposit to open it? And how much interest do you want to earn? If you need the money within the next few months, a regular savings account or high-yield savings account makes sense. If you know you will not touch the money for at least a year, a CD usually pays more interest. If you want to earn interest but might need occasional access, a money market account splits the difference.
For retirement saving specifically, an IRA is almost always the better choice than a regular savings account because of the tax advantages. You can open an IRA with as little as $0 at some banks and credit unions, though you need to contribute money to it. If you are self-employed or own a small business, you may also have access to a SEP IRA or Solo 401(k), which allow you to save more per year than a regular IRA.
Many people use more than one type of account. For example, you might keep three months of expenses in a high-yield savings account for emergencies, put money you will not need for two years in a CD, and contribute to an IRA for retirement. The key is understanding what each account does and matching it to what you plan to do with the money.
Frequently Asked Questions
Can I move money between these accounts without losing interest?
Moving money from one savings account to another does not cost you anything or trigger a penalty. However, if you withdraw money from a CD before it matures, you will pay an early withdrawal penalty. Transferring money out of an IRA before age 59½ usually triggers taxes and a 10% penalty, though some exceptions exist.
Is my money safe in all of these accounts?
Money in regular savings accounts, high-yield savings accounts, money market accounts, and CDs at banks is insured by the FDIC up to $250,000 per account type per bank. Money in IRAs is also FDIC-insured up to $250,000. If the bank fails, you do not lose your money. Credit unions offer similar protection through the National Credit Union Administration (NCUA).
What happens if interest rates go down after I open a CD?
Your CD rate is locked in and does not change for the entire term, even if the bank lowers its rates. This is one advantage of CDs—you know exactly what you will earn. If rates go up, you cannot benefit unless you wait until the CD matures and open a new one at the higher rate.
Can I have multiple IRAs at the same time?
Yes, you can have multiple IRAs, but your total contributions across all IRAs in a year cannot exceed the annual limit—$7,000 in 2024 if you are under 50. You can have both a traditional IRA and a Roth IRA, but the $7,000 limit applies to the combined total of both.
Which account type earns the most interest?
CDs and high-yield savings accounts currently offer the highest interest rates, typically between 4% and 5.5%. The exact rate depends on the bank, the account type, and the term length. Rates change over time as the Federal Reserve adjusts its benchmark rate, so checking current rates at multiple banks before opening an account is worth doing.