Starting a savings account is one of the cornerstones of creating a healthy financial future. With a savings account in place, you can begin putting money away for specific purposes, such as creating an emergency fund, saving for a down payment on a house, or even saving for a future goal such as retirement. When it comes to savings accounts, knowledge and patience are key. With the right account in place and time to let your contributions grow, you can find that you have created the perfect nest egg for your needs – whether those are personal or business-related.

 

What is a savings account and what are the different types?

A savings account is a traditional financial product offered by the majority of financial institutions. Its purpose is to serve as an interest-bearing deposit account that will safely hold your funds for future use. That being said, a savings account should not be used as a place where you put money away for immediate spending. Its goal is to be an account where you can grow your funds over time to be used later on for costs separate from your everyday expenses.

At many financial institutions, there are several types of savings accounts that may be offered. Some of the more common variations include, a traditional savings account, a money market account, a certificate of deposit (CD) account, and specialized savings accounts such as a health savings account (HSA) or individual retirement account (IRA).

 

Traditional Savings Account

A traditional savings account is the simplest of the savings accounts. Like all savings accounts, it is designed to safeguard money that you want to put away for the future while allowing you to earn interest on those funds. However, a traditional savings account may include lower rates than other types of savings accounts do.

One advantage to a traditional savings account is that your funds are still fairly accessible. Many banks typically allow you to make a maximum of 6 withdrawals per month before subjecting you to a fee. Moreover, checking accounts and traditional savings accounts tend to go hand-in-hand as most banks will allow you to link them together and transfer funds between the two.

So, for those who are still learning about savings, a traditional savings account can be a great starting point!

 

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Money Market Accounts

One difference with a money market account is that it offers higher interest rates than a traditional savings account. Yet the biggest perk it has to offer is the fact that it includes check-writing capabilities. In this way, a money market account is actually more like a regular checking account and can offer even greater accessibility to your savings funds than a traditional savings account.

However, like regular savings accounts, a money market account still typically limits withdrawals to six per month otherwise you may be subject to excessive use fees.

 

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Certificates of Deposit (CD) Accounts

 With a CD savings account, your money is deposited and left for an agreed time period which can range from months to years. During that time, your money will continue to earn interest and, once the time limit is up, you can either withdraw the funds or roll it over to a new CD account.

Of course, this means that a CD account will offer you less access to your savings than other accounts will. In fact, you may even be charged a fee if you decide to withdraw your money early. However, in exchange for your patience and commitment, you will see savings that grow faster than they might in a traditional savings account. Similarly, a CD can be helpful in saving for a long-term goal.

 

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Health Savings Account

A health savings account, or HSA, is a specialized personal savings account designed specifically for medical expenses. The biggest advantage with having an HSA is that you will not be charged taxes on the money deposited into or on the interest earned in the account. Plus, the funds that are not used at the end of the year will roll over into a new HSA account to be used for the next year.

If you are a good candidate for an HSA, you may find that it is a helpful tool in reducing medical costs not only for you, but potentially for your spouse and children as well. Be sure to consult with your tax advisor to determine if a health savings account is right for you!

 

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Individual Retirement Account

Another specialized personal savings account is the individual retirement account, also known as an IRA. Like a health savings account, an IRA is designed for a specific purpose: your retirement. Not only that, but the money deposited into an IRA is tax-advantaged which may help your savings grow more quickly than in a taxable account.

Since the money deposited into an IRA is meant for a long-term goal, you could be charged penalty fees if you withdraw money from it before age 59 ½. Yet for those looking to boost the security of their financial future, opening an IRA account can be a good step in this direction. Again, be sure to speak with a tax advisor before opening an IRA to determine whether this is the right account for you!

 

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No matter your goal or whether you’re looking to save for yourself or for a business, there is a savings account waiting to fit your needs. If you’d like to learn more about the accounts that FFB offers and see if you qualify to open one with us, please feel free to reach out to one of our team members. Let your savings journey begin!