If you’re looking to save money for any purpose, using a dedicated savings account is helpful. Having a separate account makes it easier to stick to your savings goals, avoid overspending, and hopefully earn some interest along the way!
There are several different types of savings accounts that you can utilize to work toward your savings goals. This comprehensive guide will cover all the various types, along with the advantages and disadvantages of each.
The basics of savings accounts
Savings accounts are a type of bank account that typically pays interest. They are designed for saving money rather than spending it (like a checking account).
Savings accounts are very safe. They are federally insured by the FDIC for up to $250,000 per account. This means that even if the bank were to go out of business, your savings would be guaranteed by the federal government.
Savings accounts usually pay a higher rate of interest than a checking account. And unlike a checking account, savings accounts don’t typically come with debit cards. Users don’t typically make purchases directly from a savings account, and many accounts are limited in the number of withdrawals or transfers that can be made from a savings account. Many banks have a maximum withdrawal limit of six times per month.
Traditional savings accounts are offered by banks and credit unions. They are often used in addition to a standard checking account, and users have the ability to easily transfer between their two accounts.
There are also various specialty savings accounts, which will be discussed in greater detail below.
Savings vs. checking accounts
The main difference between saving and checking accounts is in their intended use. Checking accounts are designed to be used for making everyday purchases and transactions, while savings accounts are designed to hold funds for your savings.
Both types of accounts can be interest-bearing (meaning they pay interest), but savings accounts typically pay more.
Another key difference is in the withdrawal limitations. Most savings accounts limit you to six withdrawals per month while checking accounts have no limits on the number of withdrawals.
Benefits of savings accounts
There are several key savings account benefits to consider:
Higher interest rates: Savings accounts usually pay a higher annual percentage yield (APY) than checking accounts. In fact, some checking accounts don’t pay interest at all.
Encourages saving vs. spending: Having a dedicated savings account makes it easier to set money aside for various goals rather than spending it. Having two accounts (checking and savings) can create a barrier for spending your savings, making it easier to work toward your goals.
Extremely safe: Unlike investments, you can’t lose money with a savings account — and even if the bank goes out of business, your funds are insured for up to $250,000 by the FDIC.
Easy to open and use: Savings accounts are simple. You can typically open one in just a few minutes. You don’t need any experience with investing or banking to get started.
For most people, the main benefit of a savings account is having a separate place to save — with the bonus of earning some interest along the way.
What do banks do with money in savings accounts?
You may be wondering how a bank can afford to pay you interest on money that you put in savings.
Well, it’s simple: Banks are in the business of loaning out money, and they need money in order to make those loans.
When you put money in a standard bank savings account, you are giving the bank permission to loan out that money. They may use it to back a mortgage loan, an auto loan, or any other type of loan that they offer.
The bank takes on the risk, however. That means if the person who takes out the loan doesn’t pay it back, the bank takes the loss — your money will still be there.
And you can withdraw your money at any time. The bank needs to have enough money on deposit in order to back the loan, but they have funds from many different customers, so you can make a withdrawal when it suits you.
With specialty savings accounts, financial companies may loan out money directly or invest in assets that earn a return.
Which type of savings account is best?
There are various types of savings accounts.
Standard banks offer traditional savings accounts and may also offer some specialty accounts like student savings accounts.
Online banks and specialty platforms offer more unique savings accounts, like high-yield savings accounts.
The best type of savings account depends on your goals and preferences. The simplest method to compare multiple savings accounts is to look at the interest rate (APY) they offer.
In most cases, the account that offers the highest APY will be the best option. A higher interest rate means you will earn more on your savings, and your account balance will grow faster.
On this point, there are also saving platforms that offer a similar feel and bank-level security comparable to a traditional savings account, but are offered by non-bank, non-FDIC financial technology companies that pay a substantially higher interest rate (APY). For example, Tellus’ high-yield cash accounts earn between 3.00% to 4.50% APY, compared to 0.10% to 0.60% from traditional banks, with most big banks offering a meager 0.01% return on your savings. If your goal is to grow your savings, opting for the highest yielding account typically makes the most sense.
Traditional savings accounts do offer the benefit of being FDIC insured. So while you’ll earn less in interest, the accounts are guaranteed by the federal government. That’s effectively the deal you are making when you choose to save with a traditional bank— ultimate safety in exchange for next to no return on your money. Some people say this is slightly better than leaving your money under the mattress. Traditional savings do not help you much in an inflationary environment.
Ultimately, savers should compare all the available options and consider their unique goals and preferences when selecting an account.
Types of savings accounts: overview
There are many types of financial accounts designed for saving available today.
For the most part, they can be broken down into three categories, outlined below.
Traditional savings accounts
Traditional savings accounts are offered by banks and credit unions. These are the standard savings accounts that often come bundled with a checking account when you start with a new bank. They are simple, but don’t usually pay much in interest.
Traditional banks also offer a few specialty accounts, such as:
- Student savings accounts, which are reserved for students
- Money market accounts, which are like a hybrid between a savings and checking account
- Certificates of deposit (CDs), which offer a higher yield (or income) but require funds to be locked up for a period of time
High-yield savings accounts
High-yield saving accounts are offered by online banks and specialty online financial institutions and startups. They aim to offer higher interest rates to savers. There are a few different subtypes within this category:
- Traditional high-yield savings accounts, which are FDIC insured but offer mediocre interest rates
- Specialty high-yield savings accounts, which are typically FDIC insured, but may come with subscription fees, account balance maximums (or minimums), or other limitations, in exchange for substantially higher interest rates
Retirement accounts and other tax-advantaged accounts
Finally, there is a third category that isn’t really a type of savings account but still deserves mention. This category offers tax perks, but only when funds are used for a specific purpose. There are a few common subtypes in this category:
- Retirement accounts are designed to help you save for retirement and allow funds to be invested in the stock market.
- Health savings accounts are designed to save for medical expenses.
- College savings accounts are designed to save for educational expenses.
Again, these aren’t “savings accounts” in the traditional sense of the term, but they are worth considering for certain goals. For instance, if you’re saving for retirement, using a retirement account like a Roth IRA makes more sense than using a simple savings account.
Types of savings account: the detail
Now you’re clear on the three main categories of savings accounts, let’s take a look at some individual types of savings accounts in more detail.
Standard savings account
A standard savings account is as simple as it gets. These are offered by traditional banks and credit unions — and chances are, you already have one.
These accounts often come bundled with checking accounts when you sign up with a new bank. This is a notable advantage for some, as it makes it very easy to transfer money between your primary checking and your savings account.
Traditional savings accounts typically pay interest, but their rates are generally quite low. These accounts have restrictions on withdrawals — typically six per month. Unfortunately, some banks have a minimum balance requirement on these accounts, and some even charge a monthly fee. In general, it’s best to avoid any savings account with a monthly fee.
- Offered by most banks and credit unions
- Often bundled with checking accounts
- Simple to open and use
- FDIC insured for up to $250,000 per account
- May have minimum balance requirements
- Some banks charge a monthly fee
- Low-interest rates
High-yield savings account
High-yield savings accounts are similar to standard savings accounts. They have the same six withdrawal transaction limit and are usually FDIC insured.
The main difference is that they pay a higher rate of interest. Unfortunately, interest rates are still quite low these days, even on so-called “high-yield” savings accounts.
Most high-yield savings accounts are offered by online banks. These banks save money by not having many in-person branches, and they pass along some of the savings to customers in the form of higher interest rates.
- Pay a higher interest rate than traditional savings accounts
- Most are FDIC insured for up to $250,000 per account
- Simple to open and use
- Interest rates are still relatively low
- May have minimum balance requirements
Tellus high-yield accounts
The Tellus smart savings platform is a unique way to earn more interest on your savings.
Tellus pays a minimum of 3.00% APY on your savings — that’s about 30x the national average savings rate— and up to 4.50% with its Reserve Account (which is free to open and use). Plus, users can accelerate their earnings by claiming free Boosts every day (think of these as ‘APY power-ups’). It’s possible to earn up to 6.00% APY for limited time periods with Tellus.
You can link an existing checking account to transfer money in and out, and you can make withdrawals at any time. This offers a similar separation between your savings and spending accounts as a bank checking and savings account. However, Tellus is not a bank and therefore is not FDIC insured.
Tellus generates its revenues as a non-bank lender, and provides mortgages — loans secured by residential real estate. Tellus’ loans are typically short duration (approximately 12 months) and are always over collateralized (i.e. the value of assets held as collateral is always greater than the value of the loan amount), which offers ample protection should real estate prices soften.
Tellus holds these loans on our balance sheet, and they generate a predictable stream of income. This lets Tellus pass the profits onto savers in the form of highly competitive interest rates that are paid out daily— not monthly like most banks.
From the user’s perspective, this means savers can earn higher interest rates on their savings than they would from a traditional savings account or a high yield savings account, all while keeping their cash out of the stock or crypto markets.
- High yields starting at a 3.00% APY base rate
- Boosted yields of up to 6.00% APY
- Interest paid out daily
- Daily compounding interest
- No fees
- No lock-up periods
- Tellus is not a bank and is not FDIC insured; backed instead by real estate and cash assets that serve as collateral protection for Tellus
Student savings account
Student savings accounts are just what they sound like — savings accounts designed for students. They are usually targeted toward older teens and college students. Some may have a minimum age requirement of 15 or 16, and many have a maximum age as well.
A student savings account functions similarly to a standard bank savings account. It pays interest, has the same withdrawal limits, and works in the same way.
The difference is that these accounts offer perks specifically for students. For instance, most have no monthly fee or no minimum balance requirement. Some accounts may have other benefits, like bonuses for good grades or other student-specific perks.
In short, these accounts are designed to help students access banking and earn some interest on their savings.
In most cases, these accounts will convert to standard checking accounts once the account holder reaches a certain age (or is no longer a student).
- No monthly fees
- Pays interest
- May offer student-specific perks
- FDIC insured
- Only available to students
- Interest rates are still very low
Money market account
Money market accounts are somewhat like a hybrid between a savings account and a checking account. They are designed for saving, but you can write a limited number of checks from a money market account each month. Typically this is up to three checks per month. Some accounts even allow for a limited number of debit card transactions.
A money market account pays interest, and rates are often higher than traditional savings accounts. However, these accounts often have a higher minimum balance.
Other accounts have tiered interest rates for different account balances. For example, an account may offer a certain interest rate for balances under $10,000, a higher rate for balances between $10,000 and $25,000, and a higher rate for balances above $25,000.
Money market accounts are typically FDIC insured if they’re offered by a traditional bank. Money market mutual funds are also available through stock brokers, but these are not FDIC insured.
- Pays higher interest rates than traditional savings accounts
- You can write checks from the account
- Typically FDIC insured
- Often requires a higher minimum deposit
- Earning higher rates may require a larger deposit
Certificates of deposit (CDs)
Certificates of deposit, otherwise known as CDs, are a banking product offered by most traditional banks. They offer a higher interest rate in exchange for locking funds up for a period of time.
Using a CD is like loaning money to your bank. You can buy a CD for a set amount and a set period of time — $1,000 for two years, for example. Your bank then keeps that money for the two-year period (and will likely loan it out to another customer). After the two years, the bank returns your money, along with the interest it has earned.
The advantage is that CDs pay higher interest than standard savings accounts. The downside is that your funds are locked away for a period of time. You can usually access them early if you need to, but there will likely be fees involved.
Certificates of deposit are usually available in terms ranging from three months to five years. They are sold in set amounts — $1,000 or $5,000, for example.
CDs can be helpful if you’re saving for a future expense that you know will come at a certain time. For example, if you’re getting married in a little over one year, buying a 12-month CD could make financial sense.
CDs are a safe investment and are generally FDIC insured, as long as a traditional FDIC-insured bank sells them.
- Higher interest rates than standard savings accounts
- Generally federally insured
- Available in a variety of term lengths
- Locks funds up for a period of time
- Penalties for withdrawing early
- Only sold in set dollar amounts
Tellus offers a similar product, called Vaults.
Vaults is Tellus’ long-term savings product that allows you to lock-in a high interest rate for a fixed period of time in exchange for locking up your money for the same duration.
For now, you can choose between three (3) Vaults:
If you’re saving thousands or hundreds of thousands, Vaults are a great option for you! There’s no upper limit to the amount of money you can keep in a Vault (the minimum balance to fund a Vault is $1,000). And just like all of the other accounts Tellus offers, your interest will compound every single day. Learn more about Vaults here.
Cash management account
A cash management account (CMA) is a type of financial account that is offered by nonbank financial institutions. Many stock brokers and mobile trading apps offer cash management accounts.
These accounts are usually attached to an individual’s investment account. For instance, an investor might have a retirement account and a brokerage account with a stockbroker and may also have a cash management account attached.
CMAs combine some of the features of checking and savings accounts, with the added bonus of being attached to investment accounts. They earn interest, offer check-writing services, and often have debit cards and bill-pay features. They typically have no fees.
Cash management accounts can be useful for high-net-worth individuals and anyone who wants all their accounts in one place. Someone could theoretically use a CMA with their broker and not even need to have a traditional checking or savings account.
CMAs are typically FDIC insured through partner banks. Some are even insured past the $250,000 limit. Some brokers partner with multiple banks to split up account balances — so an investor with $750,000 in their CMA could have their full balance fully insured by three different banks. FDIC insurance details vary depending on the account, so investors should be sure to read the fine print.
- Pays interest
- Usually attached to your investment account
- Combines features of checking and savings accounts
- Typically FDIC insured
- Usually requires a separate brokerage account
- Rates can be lower than high-yield options
- May have a high minimum balance requirement
Health savings account
A health savings account (HSA) is a unique account that offers tax perks for setting money aside for medical expenses.
When you have an HSA, you can deposit money into it and not pay taxes on that money. You can either deduct funds directly from your paycheck (pre-tax) or deposit manually and then claim a deduction on your tax return.
You can then withdraw money later to pay for qualifying medical expenses — and you still won’t pay any taxes. Plus, HSA funds can sometimes be invested so that they grow faster.
Unfortunately, these accounts are not available to everyone. Only US taxpayers enrolled in a qualifying high-deductible health plan (HDHP) will qualify. You can find full details on account eligibility at HealthCare.gov.
HSAs don’t necessarily earn interest. Many function similarly to an investment account, meaning that the account owner can select from various investment products. The main benefit of an HSA is the tax perks.
- Offers tax perks to save for medical expenses
- Can earn an upfront tax deduction, plus tax-free growth
- A good way to save for future medical care expenses
- Only available to people with certain medical insurance plans
- Money must be invested to earn yield (which can be risky)
- Plan details, fees, etc. vary significantly
Retirement accounts are tax-advantaged investment accounts that are designed to help you save for retirement. They are not traditional savings accounts but investment accounts.
Money that you put in retirement accounts can be invested in a wide variety of assets. You can buy stocks or mutual funds, bonds, or things like money market mutual funds. By default, retirement accounts don’t earn interest — you have to manually invest the money in something that will earn a return.
There are several different types of retirement accounts. There are two overall categories: Traditional (pre-tax) and Roth (post-tax).
Pre-tax accounts like traditional IRAs and 401(k)’s offer upfront tax advantages. Whatever money you deposit into these accounts, you can deduct from that year’s taxes. So if you earn $50,000 and contribute $3,000 to your 401(k), you will only pay taxes on $47,000 of income. Money can then be invested and can grow tax-deferred. When you eventually withdraw funds in retirement, you will owe taxes on your profits.
Post-tax accounts like Roth IRAs offer tax benefits in retirement. They don’t earn any upfront tax break, but when you eventually withdraw funds in retirement, you won’t owe any income taxes.
Regardless of the account type, retirement accounts offer powerful tax benefits.
The downside is that these accounts are really only for saving for retirement. If you withdraw funds before reaching retirement age (59 ½ in most cases), you could face tax penalties.
- Significant tax benefits for saving for retirement
- Tax-deferred growth until retirement age
- Very powerful if used over long periods
- Wide variety of investment options
- Only for retirement savings
- Early withdrawals may result in a tax penalty
- The tax and contribution rules can be complex
Savings accounts offer a designated place to save toward your financial goals. And if you choose the right type of savings account, you can earn more interest to accelerate your savings.
Want to earn 3.00% to 4.50% APY on your savings without exposure to the stock market or cryptocurrency? Then, Tellus is the smart savings solution for you!
All Tellus Products Provide:
✅ Ease of use (3-minute sign-up; 100% mobile)
✅ High yield income on idle cash (3.00%-4.50% APY)
✅ No fees (100% free to use)
✅ No lock-in period (Move your money when you need it)
✅ Daily payouts (Interest is deposited into member accounts daily)
✅ No crypto or stock exposure (Tellus does not invest in the stock or crypto markets)
✅ No credit check to open an account (Start earning in 3 minutes or less)
✅ Amazing CA-based Support (A dedicated US-based support team handles every customer outreach)
Feel good performance:
Since launching Tellus Boost in 2020, Tellus has met every member payment obligation and maintained an unmatched 100% loan repayment success rate. The industry average mortgage delinquency rate during the same period was 6.04% (Statista, U.S Mortgage Delinquency Rates 2000-2021).