Types of Savings Accounts

A savings account is the right place to keep cash that you don’t need to spend immediately. It’s ideal for medium-term saving because it preserves the dollar value while paying you interest.

A savings account is different from a checking account, which is meant for everyday transactions. Savings accounts allow you to save money for specific goals, such as an emergency fund, a down payment for a home, or a large purchase.

While you can make withdrawals from your savings account, your financial institution may limit the number of times you can perform certain transactions per month.

What is a savings account?

A savings account is a type of account at a bank or credit union that allows you to save for your goals. A savings account helps you grow the money you deposit. You may be required to deposit a minimum amount.

Savings accounts are an easy way to earn passively. They also offer you more convenience and liquidity, meaning you can easily convert your savings to cash, though you may face penalties for making withdrawals, depending on the account.

Advantages of a savings account

With a savings account from a reputable institution, you can:

• safely earn dividends (from a credit union) or interest (from a bank) on your money. The amount of money you earn varies depending on the type of account and the financial institution. (If you earn $10 or more in dividends or interest, the IRS does tax that as income. You’ll receive a 1099-INT form for tax purposes.¹)
• earn compound interest, meaning that you earn dividends or interest on your deposits, and then earn interest on that interest.
• set up automatic deposits from your paycheck or checking account.
• schedule automatic bill pay (some savings accounts)
• rest easy, knowing that your money is insured up to $250,000 per member, per account type, if you open a savings account with a reputable financial institution

What to consider when choosing a savings account

Before opening a savings account, make sure you understand the policies.

When you keep money in a savings account, it’s usually pretty accessible. But there may be withdrawal limits. You may be limited to a certain number of withdrawals per month, or you may be limited to withdrawing a certain dollar amount per month. Or perhaps you simply need to maintain a specific balance. It’s important to understand the rules, because if you break them, you will likely pay fees.

Speaking of fees, some savings accounts charge a monthly maintenance fee or other fees.

Accounts at a credit union have protection from the National Credit Union Administration (NCUA) for up to $250,000 for each depositor, each institution, and each account type, including:

• an individual account such as a checking, savings, or money market account
• a joint account including a checking, savings, or money market account (insured up to $250,000 for each owner)
• a revocable trust (insured up to $250,000 for each eligible, named beneficiary)
• an irrevocable trust (insured up to $250,000 for each eligible, named beneficiary)
• a retirement account like a traditional IRA, a Roth IRA, or a Keogh

So if you open a savings account and a Roth IRA — two types of accounts — each account is insured for up to $250,000.

Or, if you and your spouse — two different depositors — open a joint savings account, each of you is each insured for up to $250,000. So that joint account is insured for up to $500,000.

The NCUA doesn’t cover losses on funds invested in stocks, bonds, mutual funds, or life insurance policies.

Different types of savings accounts

These are the most common types of savings accounts.

Regular savings

This is the most basic type of savings account. It pays dividends or interest and is typically insured by the NCUA or FDIC.

Your money is pretty accessible, although there may be limits on how often you can make withdrawals.

A regular savings account pays, on average, 0.39% dividends or interest, according to the FDIC. But a high-yield savings account — a type of savings account that pays an above-average interest rate — pays around 4% annual percentage yield (APY).

Some accounts charge monthly maintenance fees or other fees.

High-yield savings

A high-yield savings account pays an above-average dividend or interest rate, helping you to grow your money more quickly. Most pay 3% or 4% annual percentage yield (APY). They also tend to have lower fees than a regular savings account.

High-yield savings accounts are mostly offered by credit unions, online banks, and fintech companies.

Like regular savings accounts, high-yield accounts are usually federally insured up to $250,000. (Before opening a savings account with a fintech company, ask which federally insured bank they partner with to hold your money.)

It’s fairly easy to withdraw funds from a high-yield savings account. Oftentimes, withdrawals are immediate or at least on the same day. But be aware that this type of account is considered a “savings deposit” rather than a “demand deposit” like a checking account, in which funds must be released immediately. So your financial institution can legally hold your funds for 7 days. Most don’t, but you may want to ask about the policy.

Money market savings

Think of a money market savings account as a hybrid of a checking account and a savings account. It has two important advantages over basic savings accounts: you can write checks against the balance and typically enjoy higher interest rates. Money market accounts make great emergency funds.

It’s generally easy to access your money, although you may be limited to a certain number of withdrawals each billing statement period. Some Money Market accounts can be considered high-yield savings tools, with rates as high as 4%.

You may need to maintain a specific account balance to avoid a fee.

(Note that money market accounts are not the same thing as money market funds, which are an investment account not guaranteed by the FDIC or NCUA.)

IRA

An Individual Retirement Account (IRA) is an investment account that helps you save for retirement. Anyone with earned income can open an IRA.

With an IRA, you contribute money to the account, and that money is invested in assets of your choosing. Your money then grows tax-deferred (traditional IRA) or with no upfront tax deduction (Roth IRA).¹

You can contribute up to $7,500 a year (in 2026) or, if you’re 50 or older, $8,600 a year.

When you’re 59½, you can start withdrawing funds from your IRA without paying a penalty fee.

Interest checking

Although technically a checking account, an interest checking account accomplishes the same thing as a typical savings account. You earn interest on your balance, so your money grows over time.

Traditional checking accounts don’t pay interest – or pay very little, perhaps .01% – but interest checking accounts do – albeit at a lower rate than most other savings accounts.

One advantage of an interest checking account is that you can withdraw funds whenever you like. There are no restrictions, as with some savings accounts.

Certificates

A share certificate is offered by a credit union. (Banks offer a similar product, known as certificates of deposit, or CDs.)

A share certificate pays interest and a share certificate pays dividends, but they both help you earn more than a basic savings account does. You get guaranteed returns over a set period of time.

The tradeoff? You won’t have easy access to your money for a set amount of time (from three months up to several years). That’s because if you withdraw the money early, you’ll typically have to pay a penalty.

Share certificates make good sense when you have a set time you need the cash (in 12 months for example). They’re also a good place to save money you don’t plan to spend in the near future.

If you’re a long way from retirement, a share certificate is probably not the best place for your retirement funds, as they typically grow much slower than other retirement investments. If you’re already retired, however, they’re a savings vehicle you should consider.

Health Savings Account

Health savings accounts allow you to make tax-deductible contributions, grow your money tax-free and pay no tax on withdrawal – as long as the funds are used for qualifying medical expenses.¹

To open an HSA, you need to be enrolled in a high-deductible health plan, usually through your employer.

When you have medical bills, the funds in your HSA help pay for out-of-pocket expenses once your annual deductible has been met.

If you withdraw money for non-qualified medical expenses, you’ll pay income tax and a 20% penalty.¹ Once you turn 65, though, you can use your HSA funds for whatever you like without paying a penalty. So an HSA can actually serve as a nice backup retirement account.

College savings (529 plans)

A 529 plan is designed to save up for college expenses like tuition, books, and housing. A 529 plan can also be used to pay for apprenticeship programs, student loan repayments, and K-12 education. You can open a 529 plan for yourself or for someone else, such as a child or grandchild.

There are no annual contribution limits. Although contributions to 529 accounts are not tax-deductible, they offer tax-free investment growth, and distributions are not taxable if they’re used to pay for college expenses.¹ States administer 529 plans, so fees and investment options vary by state.

There’s also a similar plan available called a Coverdell Education Savings Account, which can be used for grades K-12 and higher education, but is limited to $2,000 in contributions per year.

A Coverdell ESA offers tax-free withdrawals on qualified expenses and has very low fees. Another benefit is that you can choose from the investment options that your brokerage offers, such as stocks, bonds, or exchange-traded funds (ETFs).¹

While you can generally contribute up to $2,000 a year, that contribution limit drops for single taxpayers whose modified adjusted gross income (MAGI) is above $95,000, and they can no longer contribute if their MAGI is $110,000.1 Married couples who file jointly will see their contribution limit drop when their combined MAGI is $190,000, and they cannot contribute if their income reaches $220,000. If you put too much money into the Coverdell ESA, you’ll pay a penalty.

Savings accounts at Patelco

Patelco offers a variety of savings options, from a regular savings account, to traditional and Roth IRAs, to our Money Market Select and Money Market Plus accounts. We even have Kids Savings Accounts for the younger set.

If you aren’t sure which type of savings account or accounts best fit your financial goals, remember that Patelco members have access to Certified Financial Specialists who can answer questions and provide expert advice free of charge.