Once you have set your savings goal, the next step is researching your savings account options to figure out which one is right for you. Much like credit cards, savings accounts rely heavily on how high the interest rate is. But in the case of savings accounts, interest rates are your friends rather than your foes.
Make sure to research accounts that will garner you the highest interest rate in order to collect the most money in the long run. Note how much the fees are associated with these higher interest rates and decide on the perfect account.
Types of Savings Accounts
Bank Savings Account
Place your money in investments that are as safe as possible when you're beginning to save. You should always have at least some of your money in short-term investments and bank savings accounts. The federal government backs these accounts with what is known as Federal Deposit insurance Corporation (FDIC) Insurance.
The regulations of bank savings accounts vary from bank to bank, but there is always a monthly minimum balance required to not incur fees. You can usually transfer funds from your savings account to your checking account, but transfers may be limited.
Money Market Account
These are accounts offered by banks. With a money market account, you receive a higher interest rate than you would with a basic savings account, but you will also have to keep a higher minimum balance-the amount differs from bank to bank.
You will still have easy access to the funds in your account, though the number of withdrawals you can make will probably be limited.
Certificate of Deposit (CD)
This type of savings account is different because you leave your money in the account for a specific amount of time - which varies by bank and type of CD - before you have access to it. If you take money out of a CD before its maturity date, you will have to pay a penalty.
CDs also offer a higher interest rate, which will be higher than other types of savings accounts, and will often be fixed. This is why CDs are also considered a simple and straightforward form of investing.