How To Choose A Savings Account

Understanding the types accounts available will assist one in how to choose a savings account. For liquid cash, one should decide on the type of that will offer the best return for the amount deposited. There are benefits and advantages to each one, they include passbook or regular accounts, certificates of deposit, interest earning checking, money market accounts and funds and U. S. Savings Bonds.

The passbook or savings account is the most easily accessible type used for daily needs. The advantages of this type is that they are FDIC insured, money is easily withdrawn at any ATM machine and they have zero to very low minimum balance requirements. The disadvantage of this type is that they have the lowest interest rate. This is a popular children’s bank account.

Certificates of deposit have a minimum period of 6 months where ones money must be deposited. The advantages of this type are they have a higher rate of interest that is guaranteed for a set amount of time and they are FDIC insured. The disadvantage is that there is a penalty for early withdrawal and there is a minimum balance required.

Interest earning checking is great for people who write checks on a regular basis. The advantages are that they have a guaranteed interest amount that is higher, checks can be written against the balance and they are FDIC insured. The disadvantages are that a minimum balance is required, if not met there is a service charge and there are costs associated with check banking.

Money markets are offered through credit unions and banks. The advantages are they have higher interest rates than fixed deposits and passbook accounts although they are not guaranteed. Checks can be written against the balance, usually around three a month and they are FDIC insured. The disadvantages are they require a higher minimum balance than other types of savings, if they go below the minimum balance no interest is earned and there is a service charge. The minimum balance is between $1,000 to $2500 and three to six withdrawals are allowed monthly.

Money market funds differ from money markets, but are similar in that they both have the same market rates but different in that money market funds are not FDIC insured. The advantages are they have higher interest rates and 3 checks per month can be written against funds. The disadvantages are they require a high minimum balance, there is a service charge and interest is lost if the balance goes below the minimum set. The minimum balance is between $1,000 and $2500, there are three to six withdrawals allowed monthly and there is no FDIC insurance.

The U. S. Savings Bond is somewhere between a passbook account and an investment. The advantages are that there is a guaranteed return on the initial deposit and a higher interest rate, interest is exempt from taxation and it is FDIC insured. The disadvantage is that the rate of return is lower than stated if redeemed within 5 years.

Based upon whether one can leave their money in an account for a period of time or if they need access regularly will determine how to choose a savings account.