Savings Account


Oct 27, 2020
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The biggest reason why people put a significant effort and time in considering the best savings account option is that they need a long-term solution that will allow them to put some money on the side. The problem is - with so many ongoing options around you, how to pick the best account? Savings accounts are likely the most popular banking products after regular accounts. They help you achieve your financial goals by allowing you to earn interest on your savings. These are accounts that put a limit on your access, which makes them different from the transaction accounts people use the most.

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Banking institutions work very hard to come up with highly competitive financial products to earn your trust. That’s why there are so many different products – from certificates of deposit and checking accounts to a wide range of different savings vehicles – there’s a broad array of financial products.

This comprehensive guide will help you understand all the vital information about savings accounts, the types, their benefits, and how to choose the right type for your budget. There’s a type of account for every need, and we will help you decide which one works to your advantage the most.

Savings Accounts and How They Work

A savings account is a financial product with limited access that allows the user to earn interest on the money deposited. It works by applying an interest rate on any lump sum deposit the user makes. An earned interest can either be paid into a separate account or into the same account at predetermined intervals.

Your ordinary banking accounts also referred to as everyday or transaction accounts, are financial products specifically designed to cover all your financial needs daily. These products have special features that allow each user to manage their money.

Through these accounts, users can easily access their money, pay their bills, make payments all over the world, receive deposits, and use all the available means in the account. While savings accounts do have some of these features, they are structured differently.

These financial products limit your access by not allowing you to spend the sum of money you’ve previously deposited. For that, the banking institution is paying you interest on the total balance deposited into the account. The fees that banking institutions charge for this type of financial product depend on the type.

In most cases, banks don’t charge any fees for savings even though there are specific terms for breaking the savings cycle and withdrawing the deposit before time. There could also be terms such as limits on how often and if you can withdraw your means, as well as minimum deposit and balance requirements.

Savings mechanics work in a relatively simple manner. The user is required to make a deposit into the account. There are two ways to do this:

  • By consistently depositing money
  • By making a lump sum deposit that serves as a term investment

In both cases, the deposit becomes a balance, and an interest rate is applied. This rate can be applied either on a daily or monthly basis.

Different accounts have different savings, and depending on the type of the account, the interest payments will either go into a separate account or into the chosen account at intervals that are predetermined by the savings agreement.

Most people decide to go with an account that allows them to deposit the money they can use later on. This money can be easily repurposed as a down payment. The user determines a specified amount that will be deposited into their account every month.

The bank pays interest payments each month, allowing the user to earn extra interest on the balance. Thanks to this feature, the users can grow their savings much quicker. This type of savings feature is known as compound interest. It allows you to earn interest that pays directly into your account.

Your interest is added to your balance, including it to the interest for the following period. That’s how you get an opportunity to earn more with each next month without even making a deposit.

Type of Savings Account

Embarking on a savings adventure is quite a journey. It requires time, effort, and preparation, as there are many different types of savings products that offer different features and options to users.

Depending on your budget and financial needs, it’s essential that you choose the right type of savings account that will match your exact needs. Before you start considering which type is the right one for you, you must think about your financial goals.

The first step you should take is understanding the features of each type of savings to make an educated decision on which financial product will help you achieve your goals.

Most users of banking services are considered to be casual savers, meaning they have no financial plans in particular at the moment. For this type of saver, an online savings account is quite enough.

On the other hand, some are on a clear path to increase their savings. To them, the only type of savings product is the one that allows them to increase what they already have through interest. To this type of savers, term deposits and bonus saver accounts look more appealing. With that in mind, let’s delve deeper into different types of saver accounts:

  • Introductory Bonus Savings – exclusive to new users, this type of savings product allows you to earn a higher interest rate for a predetermined interval of time after you’ve opened it. The higher rate is only applied for the initial period of the bonus terms, after which the rate will change back to standard.
  • Bonus Saver Accounts – for this type of savings product, the bank sets forth the terms of commitment. As long as a saver can meet these terms, they can get an opportunity to earn interest at a higher rate continually. These special terms usually include limited access to making monthly withdrawals and making minimum monthly deposits. In case that a saver fails to meet the terms, their balance will be increased for the base rate only. To apply for a higher interest rate, they need to make a deposit again.
  • Online Savings – if convenience is what you’re after, this type of savings product might just be for you. It allows you to earn higher interest rates but limits your transaction options. Online savings are often offered by online-only banks even though this type of banking service has become a norm, as so many users value such a service.
  • Retirement Savings – this type of account is perfect for elderly savers with pension benefits.
  • Cash Management Account – if you plan on making a significant investment in savings, but you’re looking for extra flexibility and control over your investment, this type of account is perfect for you.
  • Term Deposits – these are accounts with fixed savings rates. To apply for this financial product, you need to make a minimum deposit that you won’t be able to access for the agreed period. The rates are higher than with other types of accounts, but you’re risking paying penalty fees in case you need your deposit before the terms expire.

We’d like to address a couple of types of savings vehicles simply because there are many different categories. Put simply, savings accounts pretty much break into four categories: regular, high-interest, jumbo, and money market accounts.

1. Regular Savings

These accounts are pretty much the most base level offerings that you can find in almost every bank. They are simple and easy to open, have pretty much basic features while putting the fewest restrictions on the user.

The most typical requirement includes no to very low minimum balance needed to open the account, which makes this type of account perfect for almost every user who can meet such a demand.

The only downside is that the interest rates are relatively low. If you’re looking to generate income, this might not be the best savings solution for you.

2. High-Interest Savings

If you’re looking for the most efficient way to maximize your investment income, this might be the right type of savings for you. It can serve as a great alternative as it offers you a chance to earn higher interest rates on your money.

The rates of interest are much higher than with regular savings, although there’s a catch. In order to qualify for higher rates, the users will have to keep a larger minimum balance. In case your balance goes below the minimum, you’ll have to pay the penalty fees.

These fees tend to be large, so pay attention to the terms and make sure you weigh your options before making a decision.

3. Jumbo Savings

This type of savings vehicle is specifically designed for users with extremely large incomes and bank balances. The threshold for jumbo accounts differs from bank to bank, but the most common minimum amount the user needs to qualify for such an account is 100,000$.

If you fall into a category of high-value users, you will be pleased to know that jumbo accounts include high interest rates.

4. Money Market Accounts

These aren’t typical savings accounts, although they do share a similar purpose. These are hybrid savings vehicles that combine savings and checking accounts in one place. The rates of interest are higher than with most checking accounts.

Money market accounts allow users to earn higher interest rates while still having access to limited check-writing activity. This account is good for those users who want to earn some cash and still be able to use the check-writing capability.

The Features of a Basic Savings Account

Saving is a very important part of your financial stability. Choosing the right account for your short and long-term savings is the best way to ensure your financial safety and security in times of need.

Since there are so many savings vehicles to choose from, it can become quite a challenge to pick the right one for your specific needs. Things tend to look a lot better if you consider the features as these features are factors that help you distinguish one type of savings product from another.

By taking these factors into account, you’ll be able to select the exact type that matches your needs the most. Every basic savings account should have the following elements:

  • An interest rate that is applied to your balance on a predetermined basis
  • No additional transaction charges, monthly services fees and penalties
  • Minimal monthly balance requirement
  • No mandatory deposit
  • No limited access to the number of withdrawals
  • Accessibility both in a branch and online

How to Choose the Type of Savings Vehicle

Choosing the right type of savings vehicle can become quite a challenge as there are so many things to think of. Pay attention to the following factors to make an educated decision when choosing the best account for your savings needs.

The first thing you should pay attention to is the charges. Each bank has charges and fees they charge for each type of savings vehicle they offer. If you can find an account that offers all the best features without charging any fees, that’s the one for you.

While paying these fees doesn’t have to be necessarily bad, most banks offer accounts with costs that tend to outweigh the benefits. Since you’re on a money-saving mission, this isn’t an option.

If the fees, charges, and penalties don’t look good in your bank, perhaps you should try an account with less attractive features but no additional charges. You should also worry about interest rates.

When comparing savings options, most people look at the interest rates as the biggest determining factor. The trick here would be to go with the banking institution that offers the highest interest rate.

However, we urge you to pay attention to the additional charges that we’ve mentioned above. Banks also tend to change their rates from time to time. The best thing to do is to choose a savings account with a shorter savings period.

Since convenience matters greatly, go with a savings option that offers you to manage your savings plan the way you want. That means that the bank of your choosing should have an online service, the ability to do your banking in person, a good network of ATMs, and fee rebates.

Some banks offer loyalty programs and rewards to their regular users. If your bank pays rewards and bonuses for having multiple accounts with them, you can probably get a good deal there.

Think about more attractive interest rates and other financial products such as investments, loans, and other products that might help you achieve your financial goals.

Pro Tips for Choosing the Right Savings Account

Now that we’ve properly introduced you to different types of savings vehicles, we’ll share a couple of useful tips on how to narrow down your search and choose an account that really matches your financial capabilities and needs.

1. Think of a savings goal

Before you go on a savings campaign, you first need to think about a couple of things:

  • The goal of your savings
  • The sum you want to achieve

Different accounts can help achieve different goals. If it’s only an emergency fund, you’ll need an instant access account. If it’s a house deposit you’re into, you’ll need a fixed-rate account.

The goal of your savings determines the type of savings vehicle. If you have more than just one goal, going with multiple options might be the best way.

2. Compare rates and be realistic

There are certain accounts with tempting and attractive bonus rates, but these bonuses tend to wear off after some time. You can go with a couple of such options if you don’t mind switching between banks and accounts.

Just keep in mind to change the account once the initial bonus period is over. If you don’t have time for this, stick to an account with a more stable rate. Do your research on comparison websites to find a savings vehicle tailored to your needs.

3. Fixed-term deposits or regular savings accounts

Before you commit, you need to think carefully about what you want. Are you ready to say goodbye to your money for a longer period, or are you more into a standing order to your savings?

There are many different structured financial products with attractive high-interest rates, but since savings are a type of investment, you should weigh in on your options. A fixed-term means limited access and a potential withdrawal fee.

4. Don’t forget about your taxes

One more thing to think about is your income tax. If you don’t pay it, go with a savings option where you can get your interest paid gross, or your tax will be deducted automatically. If you pay your income taxes, talk about additional bonuses you can get as a taxpayer.

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