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Choosing the right type of savings account can be confusing. Are you comfortable with a certificate of deposit (CD)? Old savings account? Money Market Account (MMA)? In some ways these three types of savings accounts are similar.
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These are all taxable accounts that you can open at a bank or credit union and are protected by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Agency (NCUA). Each account has pros and cons and the right choice depends on your budget and personal needs.
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These convenient accounts are one of the easiest ways to transfer your money. A savings account is a great choice for a young person’s first account or for anyone who needs easy access to cash.
Most banks don’t charge a lot of money to open a savings account. Often $25 is enough. You may be required to maintain a minimum account balance to avoid monthly fees, which range from $25 to $1,000 depending on the bank and account. You can get an ATM card for withdrawals, but there may be restrictions on how often you can use the card and you should be careful not to fall below the minimum amount required.
If your savings and checking accounts are kept at the same bank, you may be able to quickly transfer money between accounts or use your savings account as a hedge. With a linked savings account, it’s very easy to transfer money from your savings to your checking account. However, some banks and credit unions may charge a transfer fee.
On average, you usually don’t earn much interest – the interest rate on savings accounts is, on average, lower than most other savings options.
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However, there are some exceptions. A High Interest Savings Account (HYSA) usually offers a very high interest rate. They are usually available at only online banks and offer the best savings accounts, as well as successful money market accounts. There are no federal restrictions on the number of accounts or banks you keep your money in.
Banks and credit unions also offer another type of savings account, the money market account (MMA). MMAs are similar to traditional savings accounts, but offer higher interest rates.
However, there can be a catch. You may also need a larger deposit to open an account — $1,000 is common — and keep more cash to avoid fees.
A money market account may require a higher deposit to earn higher returns. Unlike traditional savings accounts, which pay an annual interest rate, most MMAs have flat interest rates, with higher interest rates for larger amounts. This makes it desirable if you can maintain a long daily account.
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A money market account is not the same as a money market between types, and the type of car is more volatile, less capitalized.
MMAs also offer the ability to write checks on the account or use an ATM card for withdrawals and payments. However, because the institution can limit your transactions and withdrawals, money market accounts are not as good for everyday use as checking accounts.
Money market accounts vary widely – you should check the terms and conditions of the account carefully. An MMA offered by a credit union or bank may not offer a savings rate, minimum requirements or monthly payments.
When you open a certificate of deposit (CD), you allow the bank to use your money for a certain period of time – a month or up to ten years, as you wish. On the maturity date, you can withdraw your money and close the account or renew the CD according to the current rules.
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Interest rates on CDs can be higher than savings accounts or MMAs. So CDs may be desirable for savers who want to make large deposits without having to earn money over the life of the CD. CDs are FDIC or NCUA insured up to $250,000.
However, there is a trade-off. For early withdrawals you will be subject to a large penalty, usually several months of interest. You usually can’t add anything to your CD, although banks and credit unions offer CDs with this option.
The downside of these types of CDs is often lower interest rates and fewer options compared to competing interest rates and limiting interest rates.
While many companies offering CDs have zero opening fees, the best CD rates are often found at companies that require large deposits between $500 and $10,000.
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As with MMAs, higher balances on CDs tend to yield higher returns. CDs generally have a fixed interest rate, which can leave you with a lower interest rate if interest rates continue to rise.
The bank and term you choose can have a significant impact on your interest. Shop around for the best CD deals, which change frequently.
MMAs are similar to traditional savings accounts, but often require a larger deposit to open the account, such as $1,000. You can add or subtract from your MMA. A minimum deposit can help you save money and get higher interest rates than regular savings accounts. With CDs, owners have to keep their money for a certain period of time and typically pay higher fees than MMAs. Penalties for early withdrawals will also result in account closure.
MMAs are good for those who want to deposit a lot of money but don’t need to have daily or weekly access to that money. MMAs can also be arranged for those who fund their accounts. CDs can be good for those who want to lock in money for several months or years at a time. In this way, CD account holders save for a higher interest rate towards a fixed period of time, for example – a car or a house in 12 to 18 months.
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Generally, money market accounts are more expensive than CDs. In fact, many CDs have prepayment penalties, while money markets do not. However, CDs often pay higher interest rates because your money is linked to the bank or credit union. Some types of CDs have no penalty, but you may earn a small interest.
When deciding whether a traditional savings account, MMA, or CD is right for you, you should consider how much you can initially deposit, how often you need to access your savings, and the interest you want to earn. Because of the competition for deposits at some financial institutions, you can find great interest in surprising places — whether it’s a CD, a high-yield savings account, or a money market account — and not necessarily at your bank or credit union.
If you need cash for down payments, emergencies or want to increase your savings, a traditional savings account or MMA is your best option. If you can afford a large amount of cash that doesn’t work for a long time, CDs can be a good choice.
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There are many similarities and differences to consider when it comes to banks and credit unions. Both offer general services such as checking and savings and a variety of credit options. Deposits in credit and bank accounts are federally insured up to $250,000 per account per account holder.
However, you will find differences in fees, interest rates, product offerings, convenience and customer service, although everyone’s mindset is different. Credit unions typically offer low interest rates and fees, as well as exceptional customer service. However, banks can offer larger loans and other financial products and may have larger networks that can make banking easier.
Commercial banks or merchant banks can be commercial or private. Banks operate as for-profit institutions. Anyone can open a bank account, while credit unions require membership.
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As of December 31, 2023, there were 4,026 FDIC-insured commercial banks with $22.5 trillion in assets. Banks can range from single branch community banks to large regional and national banks.
Commercial banks typically offer consumers and businesses a variety of banking products, including checking or savings accounts, personal loans, auto loans, or mortgages. Banks can offer investment and savings vehicles such as retirement accounts (IRAs), certificates of deposit (CDs), and more. Money market account.
Unlike credit unions, which are exempt from income taxes, banks must pay federal income tax on their income.
Deposits in the bank are federally insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC), so your money is safe.
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