A Breakdown of Savings Accounts

Laveta Brigham

For many of your financial goals, whether it be a new car, a new home or retirement, a savings account can help you get there. The deposits you make into your savings account can earn interest and, over time, that bundle of money grows so you can afford to pay […]

For many of your financial goals, whether it be a new car, a new home or retirement, a savings account can help you get there.

The deposits you make into your savings account can earn interest and, over time, that bundle of money grows so you can afford to pay for many of life’s milestones, both small and big. In turn, those certain milestones, such as buying a home, help increase your overall net worth.

The interest rate you earn, how you access these funds and how much you pay in monthly fees depends a lot on the type of savings account you have.

As you shop around, know that most banks offer a variety of different savings products, including brick-and-mortar savings accounts, high-yield savings accounts, certificates of deposits (CDs) and money market accounts (MMAs).

Below, CNBC Select breaks down the difference between these four banking products to help you decide which one best fits your saving needs.

1. Brick-and-mortar savings accounts

Brick-and-mortar savings accounts are the traditional savings accounts offered by large national banks.

These banks provide savers with access to thousands of physical branches, as well as a large network of no-fee ATMs so customers have easy access to their funds.

With their broad availability, savings accounts from brick-and-mortar banks are super convenient for consumers who prioritize in-person customer service. Because these big banks have high overhead costs to operate their branches, however, this usually gets passed on to their customers in the form of high fees and low interest rates on their savings accounts. These interest rates are variable, meaning they can change without notice at any time.

If you are looking for to open a traditional savings account from a big bank, know that product and feature availability vary by market so what you are offered typically depends on where you live.

Once you open your account, you can add more money at any time. For withdrawing or transferring funds, savers are usually limited to a maximum of six free transactions per statement cycle. This federal law, known as Regulation D, however, has been temporarily waived during the pandemic.

It’s always important to make sure you open a savings account with a bank that is FDIC-insured so your money is protected, and with these older, larger financial institutions, you can rest assured that most are.

CNBC Select ranked the best brick-and-mortar savings accounts and for a simple, no-frills and low cost savings account at a brick-and-mortar bank, choose the U.S. Bank Standard Savings Account. Read our full review to learn more.

Bottom line: It’s smart to open an account with a brick-and-mortar bank for the personal, face-to-face experience their physical branches provide. But if you’re just looking to earn the highest return on your savings, then the next three savings vehicles are better options.

2. High-yield savings accounts

High-yield savings accounts have much higher returns than your traditional savings account.

With higher APYs than brick-and-mortar accounts, users can really take advantage of compound interest, which is essentially earning interest on interest. Most accounts compound interest daily, so your money grows little by little each day that it sits in your account. Like brick-and-mortar savings accounts, high-yield savings have variable interest rates so they fluctuate, and the rate you get when you open your account may go up or down.

Similarly, savers can make deposits into their account at any time and the same six-per-statement-cycle withdrawal and transfer limit applies (again, currently waived now amid the ongoing pandemic).

When looking for a high-yield savings account, consider online-only banks for the highest APYs. Though most don’t have physical branch locations, their accounts typically have higher interest rates, lower fees and overall better benefits than what’s offered by national brick-and-mortar banks.

CNBC Select ranked the top high-yield savings accounts and the best overall pick from an online bank is the Marcus by Goldman Sachs High Yield Online Savings. It charges no fees whatsoever and offers easy mobile access. Learn more by reading our full review.

Looking for a high-yield savings offered by a big bank instead? The American Express® High Yield Savings Account was ranked best overall for its above-average APYs, ease-of-use and 24/7 customer service with good reviews. You can read our full review here.

Bottom line: The higher the APY, the faster your money grows, which makes high-yield savings accounts a better choice than brick-and-mortar savings accounts for getting a quicker return. High-yield savings are smart to use for things like building an emergency fund.

3. Certificates of deposits

Certificates of deposits — more commonly known as CDs — are a bit more complex, but they tend to offer the highest rates.

Unlike the other three types of savings accounts mentioned in this article, CDs have fixed term lengths with a beginning and an end date, also known as a maturity date. CD term lengths vary, ranging between three months and five years, and usually the longer the term, the higher the interest rate offered.

It’s key to understanding how CDs work because once you open one and deposit your cash, you can’t make additional contributions during your CD term. With the three other savings accounts on this list, you can add money to your account at any time.

With a typical CD, you also cannot access your funds until the term is up. If you do, you often have to pay an early withdrawal penalty fee. At the end of the term, you receive your original deposit plus the accrued interest you earned.

Another feature that makes CDs different from the rest is that they offer fixed interest rates. This means that the interest rate you have at the time you open your account will remain the same for the life of the term. This is good news if you open a CD before rates drop, but not so much if you open a CD as rates are expected to increase.

When choosing a CD, the biggest factor is deciding how long you want to commit to locking up your money. There are several types of CDs, including no-penalty CDs (for easy withdrawals), add-on CDs (for making additional contributions), jumbo CDs (for large deposits) and IRA CDs (for retirement).

Check out CNBC Select’s ranking of the best CDs for the best accounts for your short- and long-term savings needs.

Bottom line: If you need more of an incentive not to touch your savings, a CD can be a smart move since you can get penalized for any early withdrawals. First decide your CD term, whether its months or years, and then find the accounts offering the best rates.

4. Money market accounts

Money market accounts — more commonly known as MMAs — are another type of savings account that is quite different than the other three on this list.

They have a few similarities to both brick-and-mortar and high-yield savings: They offer variable interest rates, allow users to deposit cash at any time and limit withdrawals and transfers to six per statement cycle (temporarily waived during the pandemic).

Unlike these other savings accounts and CDs, however, MMAs are a savings product with features of a checking account as well. The best MMAs offer check-writing privileges, debit cards, ATM access and even fee reimbursements when you use an out-of-network ATM. This means that you can grow a savings in your MMA but also use the money to make purchases or take out cash from an ATM if you need or want to.

Savers with an MMA earn interest at a higher rate than they would with an interest-bearing checking account, traditional savings account or even a short-term CD. MMA rates tend to be in par with what high-yield savings accounts offer these days.

When researching an MMA to deposit your cash, note that they often require larger minimum deposits to open an account and higher balances to earn interest and/or have your monthly fee waived than high-yield savings do. You’ll find that the best ones have zero monthly maintenance fees and don’t require minimum deposits or balances.

In our ranking of the top money market accounts, CNBC Select rated the Ally Bank Money Market Account the best overall because it provides users with check-writing abilities, a debit card and free access to unlimited withdrawals at 43,000+ Allpoint® ATMs nationwide, along with an out-of-network ATM reimbursement up to $10 per month.

Bottom line: MMAs are great savings vehicles for earning a higher-than-average interest rate while also having the ability to access your cash directly and immediately without needing to transfer it from your savings to your checking account or needing to pay for an early withdrawal free from your CD.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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