The Best Savings Account for You

Basic Savings Accounts

Basic savings accounts offer lower interest rates, have low minimum balance requirements, and offer easy access to your money. This is a good account to start saving money and is also a good place to put your emergency fund—which should be 3–6 months of living expenses. You should shop around at different banks to find a good interest rate, and also consider credit unions or online banks, which offer higher rates than most savings accounts. If you go with an online bank, make sure that it is FDIC-insured. Savings accounts are good if you know you will need the money within one year and do not want to have it locked down in a different type of account.

Certificates of Deposit (CDs)

CDs generally offer a higher interest rate than savings accounts, but the money is harder to access. You lock in the money for a set length of time, and you may get penalized or lose the interest you earned if you pull the money out early. Make sure you carefully read any agreements before you sign up for the account so that you understand the rules about withdrawals and rolling it into a new CD.

The rate of return is usually just a bit higher than a money market account, and it is a safe investment since the funds are guaranteed. It is not a great way to grow your money, but it is a great way to keep it safe. This is a good strategy for longer-term savings that you want to protect, like your ​down payment for a home. However, you may be able to earn a higher interest rate with another method.

Mutual Funds

Mutual funds are an investment tool to consider once you are ready to begin investing your money and growing your wealth. Mutual funds are the riskiest of the savings tools because the funds are not guaranteed, but they are a safer way to invest since they spread the risk of loss over several different investments. Look for mutual funds that are spread over a wide variety of stocks and have a good track record. Find out the average rate of return on the mutual funds and look at past years to see how well the fund is managed.

Mutual funds are better for long-term savings because you will need time to let the funds recover if the market decides to dip. Keep this in mind when you start saving money in mutual funds. If you need the money within five years, consider a different option for your savings.

Review the fees for a mutual fund before you choose one because they could have a significant impact on your returns. There are five types of fees:

• Expense ratio: Charged as a percentage of managed investments.
• Commission fees: Charged per trade that you place.
• Redemption fees: The fee you pay when you sell your shares.
• Service fees: Also referred to as 12(b)1 fees, they're paid to financial institutions for marketing the fund.
• Short-term trading fees: Applied when you sell mutual funds within 30-90 days of purchasing them.

Money Market Savings Account

A money market savings account is another savings account that you can get through your bank, which means the funds are still guaranteed by the FDIC. They offer higher interest rates (usually 2–3%) than standard savings accounts, but also have higher minimum deposit requirements. It is relatively easy to access the cash in your money market savings account, although some banks may limit the number of transactions per month. Be sure you understand the requirements for accessing the money.

If you can maintain the minimum balance requirements, these accounts are a good place for your emergency fund. However, if you drop below the minimum requirement, you usually end up paying a service fee and forfeit interest earned during the month.