You probably know that there’s a lot more to saving than just putting money into an account and letting it earn interest, particularly because banks, credit unions and other financial institutions offer a variety of accounts and rates.
But do you know how each type of account works and how they could help you save money for different types of goals?
We’ve put together a rundown of the types of accounts you’ll probably come across while looking for ways to save along with how these accounts work.
Next to piggy banks, a savings account may be the most classic place to keep your savings. You can deposit money, earn interest on it and make withdrawals. Traditional and high-yield savings accounts typically require a fairly low minimum balance to open an account. You can deposit money as often as you’d like, and, depending on your bank, you should be able to set up recurring deposits and transfers. Federal law has traditionally limited certain types of withdrawals, like electronic transfers, but in response to the coronavirus pandemic, these rules have changed. It’s not clear how long these changes will last, so it’s a good idea to check with your bank every once in a while to see if anything changed.
Learn more: What Is a Savings Account?
In exchange for leaving your money deposited in a savings account, your bank pays you interest. This may sound one-sided, but it’s not. Banks accept deposits and then turn around and lend it to others at a higher rate. If you’re working with a bank that’s a member of the FDIC, your deposits are protected up to certain limits. (More on this later.)
How financial institutions set their rates depends on a lot of different factors. The federal funds rate is probably the one consideration you’ve heard of most often. Every institution is different, so while we can’t offer a definitive list of additional factors, some that may play a role include things like day-to-day business costs. For banks with physical networks, this includes costs such as staff, utilities and general maintenance.
But there could be a bit more to it. For example, you may see that the rate you qualify for depends on how much money is sitting in your account.
Learn more: What Is a High-Yield Savings Account?
There are three things you’ll want to consider when looking at savings accounts:
Individually, these three factors are all important. Altogether, they provide a pretty good picture of the type of deal you’re getting for your money.
Even small differences in APYs could make a big impact when it comes to how much you earn on your savings. For instance, it may surprise you to learn that the difference between say 0.3% and 4.15% could really add up over time. Want to see how? Play around with our savings interest calculator to see how interest can add up.
Annual Percentage Yield (APY) as of May 30, 2023. APY may change at any time before or after account is opened. Maximum balance limits apply.
This calculator is for illustrative purposes only and may not apply to your individual circumstances. Calculated values assume that principal and interest remain on deposit and are rounded to the nearest dollar. All APYS are subject to change.
Rates of the selected banks reflect New York savings rates for similar products at the select banks with a minimum balance of $2,500. Rates may vary by state and do not account for bonus, special or promotional APYs. National Average is based on the APY average for high yield savings accounts with a minimum balance of at least $2,500 offered by the top 50 US banks (ranked by total deposits). Rates of selected banks and the National Average as reported by Informa Financial Intelligence, www.informars.com. Informa has obtained the data from the various financial institutions that its tracks and its accuracy cannot be guaranteed. This calculator does not include all savings accounts available in the marketplace.
Our rate as of May 30, 2023.
Comparison banks’ rates as of May 23, 2023.
National Average rate effective as of May 23, 2023.
Good to know:
When we talk about a savings account, at Marcus, this generally means we’re talking about our high-yield Online Savings Account. However, there are other types of products that could help you save and earn interest. Knowing what each of these offer can be a way to create a savings plan that helps you make the most of APYs by using different accounts at the same time.
Here are just some of the accounts that could help you save money and earn interest.
You can find these accounts at brick-and-mortar banks, online banks and credit unions. They’re designed so you can deposit money on a regular basis and remove funds relatively easily. High-yield savings accounts could offer higher APYs than traditional ones.
These accounts often have higher rates than regular savings accounts, and in exchange, you agree to keep your money in the account for a fixed period of time. To reinforce this time commitment, many CDs include a penalty if you try to break it before it matures.
A no-penalty CD offers a little more freedom. After an initial hands-off period, you can open the CD and withdraw the principal along with any interest you’ve earned and not pay a fee. You can expect no-penalty CDs to offer lower APYs than traditional certificates of deposit.
Money market accounts offer APYs that are generally lower than ones you’d find with certificates of deposit, but money market accounts offer access typical CDs don’t. For instance, you can add money on a regular basis and may be able to withdraw funds with a debit card and/or checks along with digital transfers.
When it comes to saving money, financial advisors may discuss specific accounts that you can use to save for certain goals and expenses. Although they are used for saving and could help your money grow, some of these may actually be investment accounts. These are some of the accounts you may come across:
Savings Account
Certificate of Deposit
No Penalty CD
Money Market Account
Savings Account
Certificate of Deposit
No Penalty CD
Money Market Account
APY
Variable
Can be fixed
Can be fixed
Variable
Minimum deposit
Maybe
Yes
Yes
Typically, yes
Can you add money to the account?
Yes
Typically not after the account is funded
Typically not after the account is funded
Yes
Can you withdraw money from the account?
Federal law has traditionally limited certain types of withdrawals, like electronic transfers, but in response to the coronavirus pandemic, these rules have changed
You may pay a fee if you withdraw the principal before the term ends
You cannot withdraw any money until the hands-off period ends, and withdrawals are all or nothing – you can’t make partial withdrawals
Federal law has traditionally limited certain types of withdrawals, like electronic transfers, but in response to the coronavirus pandemic, these rules have changed
Possible uses
To save money, while keeping funds in easy reach
To save money for time-bound goals, like a down payment
To let your emergency fund sit and earn more interest than it could in a traditional savings account
To save money and add to the balance, while keeping funds in easy reach (if needed, for say, an emergency)
Where you can open them
Banks and credit unions
Banks and credit unions
Banks and credit unions
Banks and credit unions
Depending on how much money you may be able to divert from, say, a checking account, there are a few ways you may be able to use different savings accounts to meet different goals.
Goal: emergency fund.
Goal: a longish-term goal like a down payment or vacation.
Goal: to benefit from different CD rates.
Yes, saving accounts are a safe bet because they typically are FDIC insured. While it’s important to make sure your bank is FDIC insured – don’t worry – it won’t be hard to find a bank that’s covered.
How does FDIC insurance work?
If your bank has FDIC insurance, the standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.
For more information on what belongs in a given category according to the FDIC, check out the FDIC-recognized account categories here.
If you have a joint account with one or more people, such as your spouse, each person is covered up to the $250,000 limit. So for example, if you and your spouse are co-owners of a CD worth $450,000, your balance is fully insured.
Highlights:
The standard FDIC insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.
Learn more: FDIC: Deposit Insurance and Coverage
If you’re looking to open a Marcus Online Savings Account, Certificate of Deposit or No-Penalty CD, it takes minutes:
This article is for informational purposes only and is not a substitute for individualized professional advice. Individuals should consult their own tax advisor for matters specific to their own taxes and nothing communicated to you herein should be considered tax advice. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of Goldman Sachs Bank USA, Goldman Sachs Group, Inc. or any of their affiliates, subsidiaries or division. Goldman Sachs Bank USA does not provide any financial, economic, legal, accounting, tax or other recommendation in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA or any its affiliates. Neither Goldman Sachs Bank USA nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.
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