When you are opening a savings account in any bank, you will definitely consider the perks and benefits that the bank will provide you with. The first thing which will revolve in your mind in such a situation is which type of account will typically have the highest interest rate?
Let me tell you to have a solution to this problem. First, you need to understand the different types of savings account that are offered by the banks. Having a clear overview of the accounts will automatically clear your doubts about the one that provides you with the best returns.
- 1 What Is A Savings Account?
- 2 What Are The Different Types Of Savings Accounts?
- 3 Which Type Of Account Will Typically Have The Highest Interest Rate?
- 4 Final Thoughts
What Is A Savings Account?
In its truest sense, a savings account is a type of account hosted at a bank or any other financial institution. The characteristic features of such an account are that it only permits limited withdrawals, does not allow cheques or debit card facilities, and also have restricted transfer facilities.
This is an interest-generating account that provides a moderate interest as well as a guarantee of the safety of your money. There are several types of savings accounts available at banks. Each savings account proves to be beneficial in different ways. Your financial situation will determine the perfect choice of savings account for you.
Note: Some banks offer great interest rates. Some banks offer easy access to money. Such quick availability of cash and other assets through banks is known as liquidity.
What Are The Different Types Of Savings Accounts?
There are various kinds of savings accounts that you will come to know about in this article. One common factor that works among these different kinds of savings accounts is that the bank will generate interest on the money that you deposit. To understand which type of account will typically have the highest interest rate, you must first get accustomed to the varieties of accounts.
#1 Deposit Savings Account
The simplest possible method of racking up money in a bank is by opening a deposit savings account. The deposit savings account, also known as a transactional savings account, provides you with a good interest rate for depositing money in the bank. Opening up such an account calls for dumping quite a small minimum sum of money. The best thing is that you would not require to pay the minimum deposit fees while you maintain the account.
#2 Money Market Accounts
Money market accounts are quite similar to deposit accounts. The money you deposit into the bank earns interest, and the amount increases. However, the difference with this type of account is that you need to submit a much larger sum as an initial deposit. The bank charges you a fee if the balance tends to fall below the minimum amount.
#3 Certificates Of Deposit
This is a specialized type of bank account that usually offers a higher interest rate in return for the agreement of depositing your money for a particular period of time. Such a specific amount of time is known as a duration or term. This maturation period can vary from a few months to around ten years. Some banks have provisions for special terms. Such terms allow people to add extra money to the account or raise the rate when general rates of interest have ascended during the maturation period.
Which Type Of Account Will Typically Have The Highest Interest Rate?
Now that you have a basic overview of the several kinds of savings accounts, we will concentrate on the main topic of focus. I am sure now you are pretty excited to know which type of account will typically have the highest interest rate among all three. Let us look at the best features available for these kinds of accounts:
#1 Deposit Savings Account
Interest Rates: The deposit savings accounts of traditional banks offer quite low-interest rates. These interest rates could range from 0.01%-2% annual percentage yield. The rates usually depend on and vary according to the banks.
Accessibility: The federal law restricts withdrawals, transfers, and online transactions to six times per month for such accounts.
#2 Money Market Accounts
Interest Rates: This type of accounts generally offers higher interest rates than deposit savings accounts. It acts as a great emergency fund if a person can afford to pay the initial deposit or maintain a balance of 1000$ or more to avoid monthly charges.
Accessibility: Due to improved liquidity, certain of these savings accounts offer debit cards and checkbooks. However, the six times per month limit carries on to be applied for any kind of withdrawals or transactions.
#3 Certificates of Deposit
Interest Rates: This is a type of account that offers the highest interest rate of all. Depending upon the maturation period, the rates range between 1%-1.35%. After the term is over, the money is invested in a new CD. This results in earning money on the value of the original deposit with the added interest the account gained over the year.
Accessibility: The sum of money that has been deposited must not be withdrawn before the end of the term. An early fee is usually charged if the money is taken out beforehand.
I hope now you have got your answer to which type of account will typically have the highest interest rate. Yes, it is the certificate of deposit savings account. This type of account provides you with great returns, even though the liquidity is low.
In general, when people deposit their money into a savings account, their motive is to keep that sum of money stalled for some time. The aim for opening such an account should not be taking out the money at any time.
You must keep your patience and let the amount build with added interest rates. Since the CD account offers such a great rate of interest for any period of time, it is a wise decision to invest in such an account and earn a great deal of cash for yourself.
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