Types of Savings Accounts

You have many options for your money. Here are the main types of savings accounts you can open today and when each might make sense.

Online savings account

An online savings account is one that you manage digitally through an online-only bank or fintech. In other words, you generally don’t have access to a physical bank.

You manage your account through the bank’s website, mobile app, and phone/email support. Online savings accounts tend to have lower fees because the financial institution doesn’t have to pay for buildings or as many employees.¹

An online savings account could make sense if you’re tech-savvy and prefer managing money through your computer or smartphone. However, online savings accounts don’t make sense if you like face-to-face support. Online accounts also may not accept cash deposits, which is a concern if you regularly earn physical currency.

Traditional savings account

A traditional savings account is run through a brick-and-mortar bank or credit union. You can stop by a branch in person to set up your account, make withdrawals and deposits, and ask questions. Traditional savings accounts usually include online banking, too.

However, traditional savings accounts often have higher fees than online savings accounts, especially at the larger national banks. You typically need to keep a larger balance in your account or pay a monthly maintenance fee.

A traditional savings account could make sense if you prefer face-to-face interactions. They could also be helpful if you regularly deposit cash, as you can do so with a teller or ATM run by the bank.

High-yield savings account

A high-yield savings account pays a more generous interest rate on your money than other options. For example, the Chime high-yield savings account pays 4.9 times the national average as of February, 2025.²

Besides the more generous interest rate, high-yield savings accounts function the same as regular savings accounts.

High-yield savings accounts are more common with online-only banks and fintechs. Since they have lower expenses, they can pass the savings to customers with more generous rates. You still might find high-yield savings accounts at some physical banks and credit unions.

A high-yield savings account makes sense if you are trying to steadily grow your money for a future goal, like buying a new car, a vacation, or a house down payment. The more interest you earn, the faster you’ll reach your goal. It’s worth shopping around to find the best rate if you plan on keeping a substantial amount in savings.

Savings accounts with automatic savings features

You can design a savings account that automatically puts money aside for you. This way, your savings grow without you manually thinking to do so each time. There are a few ways to set up automatic savings:

• Recurring transfers from checking to savings
• Direct deposit from your paycheck
• Round-ups, which round up debit card transactions to the nearest dollar and sweep the difference into savings
• Bank-assisted savings, meaning the bank looks at your checking account and transfers small amounts to savings that you won’t miss

Automatic savings features could make sense if you have trouble saving and need an extra push. The account does it for you. However, you do need to be careful that an automatic transfer doesn’t overdraw your checking account. When you set your monthly budget, be sure to plan for the money being taken out automatically for savings so you don’t accidentally spend it.

College savings accounts

A college savings account is designed to help people put aside money for future education expenses. This could be for yourself or another family member. The government designed college savings accounts with tax benefits to help people reach their goals.

For example, a 529 plan delays income tax on your interest earnings each year while the money is in the account. Your withdrawals are tax-free if you spend the 529 money on college expenses. However, if you spend the 529 money on non-college expenses, you’ll owe income tax plus a 10% penalty on your earnings.³

College savings accounts make sense if you know you’re saving for education expenses, but they should avoided for other goals because of the withdrawal penalties.

Student savings accounts

Student savings accounts are meant for people still in school. There are accounts geared towards college students as well as those who are in high school or younger.

Student savings accounts typically have lower fees and smaller balance requirements than accounts for adults. That helps teach people new to money how to save and budget. However, these accounts usually have maximum age limits. For example, a bank might only let people use a student savings account until age 24 before requiring them to switch to a regular savings account.⁴

These accounts could make sense if you are currently a student. You could also open them for your teens to teach them about money.

Long-term savings accounts

Long-term savings accounts help you put money aside for goals well into the future. There are different options.

• Certificate of Deposit: A Certificate of Deposit (CD) locks up your money for months or years. They pay higher interest rates than regular savings accounts, but you owe a penalty if you take money out before the end of the CD term.
• Retirement accounts: Retirement accounts let you save money with tax breaks. A traditional individual retirement account (IRA) gives you an upfront tax deduction for your contributions. A Roth IRA gives you tax-free retirement income. But if you take money out of these accounts before you turn 59 ½, you could owe a 10% early withdrawal penalty.⁵
• Health savings accounts: A health savings account (HSA) lets you save for future medical expenses with tax breaks, but there’s also a 20% penalty if you spend on something besides healthcare.⁶

Long-term savings accounts make sense for goals where you don’t need flexible access to the money and want to earn a higher return. Just make sure you understand the withdrawal restrictions.

You may wonder why you should keep money in a savings account versus a checking account. There are a few advantages:

• Higher interest: Savings accounts pay more generous interest rates on your money, so your money grows more quickly. The average savings account pays roughly six times what a checking account pays.⁷ High-yield savings accounts outperform checking accounts by even more.
• Organizes financial goals: Keeping your money in a savings account also helps you plan for future goals. You keep the money for long-term goals separate from your day-to-day spending so you can see your progress more easily.
• Stops overspending: A savings account also can protect you from overspending. If all your money is readily available in checking, it’s tempting to go on a spending spree, but a savings account keeps it separate. While you can still transfer the cash to checking when needed, it slows you down some to prevent impulsive purchases.

When deciding between savings accounts, consider your financial goals and preferences.

• Access to your money: If you need flexible access to cash, like for an emergency fund, you are better off using an online, traditional, or high-yield savings account that doesn’t penalize withdrawals. If you are saving long-term and want to maximize your earnings, consider a CD, retirement, or college savings account.
• Customer service: You should also consider how you’d like to use the account. Do you want to manage it online, or do you want face-to-face service?
• Fees and rates: As you compare options, pay attention to the fees and interest rates. Ideally, the account should pay a generous return while minimizing fees.

Remember, you can have more than one account. You can spread your money across a few options for different goals. If you’re interested in adding more to your savings account this year, check out these strategies for how to save money fast.