Everyone should save for short and long-term goals, but knowing which savings option is right for you can be confusing. Explore features and functions of each to determine if a traditional savings account, certificate of deposit (CD)/share certificate or a money market account is best based on your unique savings goals and needs.
28% of adults don’t have savings set aside for emergencies.
Savings Goals
- Monthly savings: 5-10% of your monthly income
- Rainy-day/emergency fund: Minimum $1K
- Mid-range savings: At least 6 months of budgeted expenses
Types of Savings Accounts
BASIC SAVINGS
- Minimal initial deposit requirements
- Easily transfer money to and from to pay bills or balance accounts
- Some come with an ATM card for convenience
SPECIALTY SAVINGS
- Designated for specific goals and needs
- Examples include Youth Savings, Health Savings, Education Savings, Holiday/Vacation Savings, Wedding, Home Down payment Savings and more
- Sometimes have conditions for how and when you can access funds
- Features vary depending on type of account
MONEY FUND (MONEY MARKET)
- Require a larger initial deposit
- Usually have higher interest rates than regular savings accounts
- May limit the number of transactions per statement cycle
- Often offer tiered structures, so the more you save, the more you earn
- Easily access account funds for transfers and transactions
- Can write checks against the balance
CERTIFICATES OF DEPOSIT (SHARE CERTIFICATES)
- Receive higher interest rates than savings or money market accounts
- Purchased for a specific term (e.g., 6 months, 12 months, 18 months)
- Fixed interest rate based on the term
- Can’t deposit additional money until term maturity
- Early withdrawal penalty
55% of adults that have a savings account have more than one.
| Standard Savings Account | High-Yield Savings Account | Specialty Savings Account | Money Fund Account | CD/Share Certificate | |
|---|---|---|---|---|---|
| Overview | Earns interest and offers quick access to funds | Earns higher interest than standard savings (often available through online- only institutions | Tailored to specific savings goals and needs, like a vacation or holiday gifts | Typically earns more interest than regular savings but has higher balance requirements | Usually has highest interest rate but has most limited access to funds |
| Insured | Yes | Yes | Yes | Yes | Yes |
| Type of Rate | Variable | Variable | Variable | Variable | Fixed |
| Easy to withdraw/transfer money | Yes | Yes, but often not immediate | Depends on type | Yes, but with limits | No |
| Good as emergency fund | Yes | Yes | Maybe | Maybe | Yes |
| Good for day-to-day savings | Yes | Yes | No | Yes | No |
| Good for youth savings | Yes | Yes | Maybe | Maybe | Yes |
| Good for vacation savings in 3 months | Yes | Yes | Yes | Maybe | No |
| Larger purchase in 6 months | Yes | Yes | Yes | Yes | Maybe |
| College tuition next year | No | Yes | Yes | Yes | Maybe |
| Future down payment | No | No | Maybe | Yes | Yes |
| Gift money for a family member | Maybe | Maybe | Maybe | Yes | Maybe |
39% of Americans don't have enough money on hand to cover a $400 emergency.
Average Savings Account Balances By Income
| Income | <$25,000 | $25,000 | $45,000 | $70,000 | $115,000 | $160,000+ |
| Median Savings | $670 | $1,400 | $2,530 | $6,000 | $13,000 | $54,000 |
| Average Savings | $6,021 | $11,719 | $13,179 | $15,333 | $37,645 | $117,771 |
Sources
Federal Reserve, Motley Fool