A Comparative Overview of Savings Accounts

Money management may seem daunting for many people, especially those who never took a personal finance class. Some people still haven’t learned how to manage a checking account, much less a regular savings account.  Kansas City Credit Union is a trusted financial institution here to help! Here is some quick insight into a few types of savings accounts and learn how to figure out which kind will serve your purposes best.

Regular Savings: A regular savings account can be opened quickly and simply at just about any bank or credit union; advantages of a savings account include unlimited withdrawals and low minimum balance requirements. These accounts are easily accessible for ATM use as well as electronic transfers. Additionally, most regular savings accounts charge little to no fees on account maintenance. However due to federal regulations, regular savings accounts do limit how often you can withdraw per month without penalty. Regular savings accounts also typically provide lower interest rates. The low-down on regular savings is much accessibility for smaller gains; money won’t be multiplying quickly in an average savings account, but it will be easily within reach of use.

Money Market: This mysterious and slightly ambiguous term actually refers to the short-term loans among banks, investment companies, and other financial institutions; in a way, a money market is a crossover between a savings account and a checking account based on borrowing and lending investment funds. This savings type is advantageous because its interest rates are considerably higher than checking or regular savings accounts. With a money market, the individual still holds the ability to write checks, electronically transfer funds, and withdraw from an ATM. Just like a regular savings account, the number of times you can withdraw from an ATM is limited per month by federal regulation. Unlike a regular savings account, however, a money market savings account generally requires a higher minimum deposit to avoid monthly fees. Essentially money market savings accounts provide higher interest rates while maintaining accessibility but require higher minimum deposits to avoid fees.

Certificates of Deposit (CD): A certificate of deposit, or CD, is sometimes also called a “share deposit” and is basically an agreement with the financial institution to “lock the money or funds away” for a designated amount of time. Why agree to set aside these funds for a long time? The answer is high interest rates. Certificates of deposit have some of the higher interest rates of savings account varieties and these rates do not change during the length of time of the account. As long as the funds are left untouched for the term of the agreement, there are no fees. Drawbacks to this savings type can include the heavy fees that come in to play when the money is removed before the allotted time. Consequentially, these funds are hardly accessible; electronic transfers are not permitted, and neither are checks or ATM withdrawals. The bottom line on certificates of deposit is that the holder trades accessibility for higher interest rates.

So, when is one account better than another? Truly there is no best savings account type, only which account better serves your purposes. Savings and money markets are noticeably similar providing easier access to the account funds with minimal fees; the difference lies in the amount of funds within the account. For smaller balances – or if the holder is not concerned with gaining large amounts of interest quickly, a regular savings will function perfectly for your finance management.

For larger amounts of money that the holder still needs quick access to, a money market is often the preferable option provided the holder understands the minimum deposit and fee requirements. Looking to store away a sum of money for a longer period of time? A certificate of deposit may be the right choice if the holder is willing to give up accessibility for increased interest.

Kansas City Credit Union is more than ready and willing to offer financial advice and provide the best insights into money management. For further information or to start your path towards financial freedom, contact Kansas City Credit Union today!