With all of the different types of bank accounts out there, you might be wondering what the best ones are to have. There are quite a few kinds of accounts that earn interest, and they each come with their pros and cons. But, as you’re searching around, you may notice that some interest rates are higher than others, and it’s worth taking the time to learn about how each one works so you can choose the one that’s right for your needs.
High-Interest Savings Accounts
Although they don’t pay much more than a traditional savings account, high-interest savings accounts offer better value over time. In general, money market accounts and high yield savings accounts are on par with each other regarding earnings.
Checking Accounts With Interest
An interest bearing checking account generally earns lower interest rates than savings accounts. Often, you’ll also need to maintain a minimum balance to avoid fees. However, an interest-bearing checking account might be perfect for you if you use your debit card often and like to access your money on the go.
College Savings Account (529 plans)
Saving for college can be tricky, but 529 plans are a low-risk way to invest in your child’s education. Contributions to 529 plans are tax-free, and earnings will only be taxed when money is withdrawn.
Money Market Accounts
Like savings accounts, money market accounts require a minimum deposit and limit monthly withdrawals. The main difference is that they offer higher interest rates. And though you can’t write checks on them, you can withdraw cash at ATMs. So they’re great for people who don’t want to tie up their money in a CD but still want some liquidity.
Certificate of Deposit (CD)
A CD is a savings account that generally pays higher interest rates than a traditional savings account. CDs are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per depositor, per bank. They typically come with longer terms and require you to leave your money untouched for three months to five years.
An Individual Retirement Account (IRA) certificate of deposit is a savings plan offered by banks and credit unions. According to the experts at SoFi, “There are two types: traditional IRA CDs have fixed rates, while Roth IRA CDs have variable rates.” Traditional IRAs may offer you tax benefits. For example, a Roth IRA offers tax-free growth on your money if you meet specific requirements.
CDs and IRAs at Credit Unions
Credit unions offer special CDs and IRA accounts that provide higher interest rates than regular savings accounts or traditional IRAs. These are often referred to as share or share draft accounts because they work like a checking account in which you make deposits and withdrawals by writing checks on your account.
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Bank Account Bonuses may be an easy way to start earning interest on your money, but you should constantly evaluate your options and ensure that you aren’t being charged for anything you don’t need.
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