What’s the best type of Savings Account?

One common question a lot of accountants claim they get often these days about personal finances is, “Do you feel like there is still any incentive to having personal savings?”

It is a fair question as banks are not necessarily going out of their way to encourage a savings account. The interest rewarded for putting a lump sum of money in a personal savings account at a bank is usually pitiful.

The biggest incentive, however, is that savings accounts are low risk. Unlike investing money in the stock market, you do not stand a chance to lose these types of savings even if the return is more modest. So what’s the best type of savings account?

Personal Savings Accounts

As previously noted, personal savings accounts are very low risk but the return on interest is usually far from great. However, the best feature is unlike other types of savings accounts, you can often withdraw the money at any time you feel like it without incurring any penalties or fees. So the money is always available to you.

High-Yield Bank Accounts

I like to refer to these types of accounts as “savings on steroids”. Like the name implies, high-yield bank accounts earn a higher interest rate than a traditional personal savings account but certain restrictions apply. For example, you may have to deposit a higher amount of money to get started, and account access is limited. The best feature of high-yield bank accounts is that they are FDIC protected, so your funds are safe here.

Certificates of Deposit (CDs)

Commonly referred to as CDs, but not the type you put into a stereo, banks and credit unions offer these FDIC-insured savings accounts with higher than average interest rates so you get a better return. The catch is you have to sign a contract with the bank on a CD, essentially pledging you won’t withdraw the money for a specified time period without a stiff penalty.