If you don't have a savings account, the vast choices of savings vehicles may seem overwhelming. There are many forms, but the types that you can access and their liquidity (the amount of time your money must remain in the account) may vary. There are forms that are available to all, regardless of type of employment, and fit with both short- and long-term savings goals (also see "Types of Savings: Part II and Part III" for long-term savings options). Some savings accounts are offered through your employer as part of your benefits package, while other accounts are designed for the self-employed or business owners. "Part IV: Employment Savings Accounts" gives more information.

Other vehicles, like savings bonds and certificates are available from government agencies. Anyone can purchase them and are not employment-dependent. Finally, some public and private agencies collaborate to give assistance to lower-income families starting goal-specific savings accounts. Please see "Part IV: Government Savings Vehicles" to understand the ways you can save through government agencies.

Each type of savings account will be described within each form of availability. To decide how to use the different accounts you can access, see "Savings Goals".

Short-term Savings

These savings accounts can be open by anyone through a bank or financial institution. Short-term accounts are not for meeting long-term or retirement savings goals (please see the article on "Savings Goals" for more information). Your interest rate or return on investment (ROI) will vary depending on the type of account that you open. You can start these accounts with as little as $1, but may vary on type of vehicle and financial institution, and may or may not be insured:
  • Traditional Savings: Standard or "passbook" savings accounts can be opened with a few dollars, but offer the lowest returns. Generally, a traditional savings account offers less than 1% to 2% interest.

Internet savings accounts offer competitive interest rates to attract more customers to this vehicle (ranging from 4% to 6%). However, all account transactions must be done online, at an ATM, or over the phone. Since many people handle their financial transactions on the internet, non-branch transactions are not a drawback, especially if greater returns can be expected.

Both the passbook and internet savings accounts are liquid (they can be closed immediately with no penalty), and are insured to federal standards (up to $100,000).

There are also versions of traditional savings accounts dedicated to specific events, like vacation or holiday saver accounts, which you can open and manage in-branch or online. They may offer interest rates slightly higher than traditional passbook savings accounts, as the idea is to save and add funds for use for Christmas shopping, the annual family trip, etc.

  • Money Market: Money market accounts also offer higher interest rates than traditional savings accounts, though not as high as internet accounts. But you are limited 6 transfers or withdrawals per month, and are required to maintain higher minimum balances; if your account drops below the minimum balance, there are fees that may apply.

There are two types of money market accounts with varying returns. A Money Market Account acts like a traditional savings accounts, just with the benefits and account limitations mentioned above. The second, the Money Market Fund, offers variable interest rates comparable or higher than an internet savings account, but your funds are invested into short-term holdings. Additionally, your funds are not insured.


References

Moneywise.Help Your Savings Grow

Consumer-Action.com.Saving to Build Wealth