Understanding Different Types of Savings Accounts

With the economy experiencing a period of instability, consumers have a growing interest in ways they can save money. Saving is in vogue again and more and more people are finding that holding on to money far outweighs the benefits of the consumer-based lifestyle of the past 30 years. There are different ways to go about the work of saving, some more high risk than others.

The most understandable and safe type of savings account is a basic savings account offered by a bank. These accounts are no frills and offer almost no interest on the amount placed in the account. Oftentimes, these are the first accounts given to children by their parents to teach them the basics of managing money. In the US, these accounts are guaranteed by the FDIC, the Federal Deposit Insurance Corporation.

A CD–Certificate of Deposit–is another type of popular savings account offered by banks. These accounts offer generally better interest rates on the amount of money deposited. This is a committed form of deposit. If the money is withdrawn before the agreed upon terms, usually 6 months to a year, the bank will levy a fee against the funds. These are excellent for those who want a reason to stick with their savings program.

Money Market Funds are popular with those who wish to have their money invested on their behalf. Most often, these investments are of the safest type possible: government securities, bonds and other types of low risk investments are the norm. These will offer better returns on your money than will a basic savings account but oftentimes have a minimum deposit requirement to participate. Because they are a type of investment, the money needs to remain in the account for a while before returns are likely to be realized. On the downside, while they are regulated by the government, these types of savings accounts are not guaranteed by the FDIC, meaning that there is greater risk involved.

A Money Market Account is quite similar to a regular bank savings account. The interest rate is usually a bit higher and the amount deposited is usually required to be a greater sum.

Savings accounts of any type have universal advantages. After the notorious bank runs of the Great Depression era, the FDIC stepped in to make certain that those with money in the bank would be able to withdraw their savings, even if the bank failed altogether. Today, the FDIC guarantees funds up to $100,000.

Physical safety is also an important benefit of saving in a bank. Money stored in a home may be stolen or destroyed during a fire or natural disaster. Banks have incredibly sophisticated vaults and some of the tightest security in the world. This acts to keep their investors’ cash safe.

A safe deposit box, though not used to store money, can also be used as a sort of savings account that benefits from the bank’s security. Oftentimes, owners will store items such as precious metals, stock certificates and other irreplaceable items in these boxes. There may be no interest to be gained, but the security is far more than any household can provide.