April is Financial Education Month – a time to focus on improving your financial literacy. One important aspect of financial education is understanding the different types of savings accounts available to you. With so many options, it can be challenging to determine which type of account is right for your needs. In this blog post, we’ll explore the different types of savings accounts and their benefits.

First, a quiz:

All saving accounts are the same.  True or False?

It is good to keep all my money in one type of account. True or false?

If you answer false to both of these statements, you are correct.

What is savings? It is simply setting aside money for future use.  However, there are different types of savings accounts and depending on your saving goal choosing the right one makes a difference.

Regular Savings Account

A regular savings account is the most common type of savings account. You can make deposits in person, transfer funds through your mobile app, or set up automatic transfers from another account to build your savings. You can also withdraw funds in person or set up automatic withdrawals, although these are limited by federal regulations. Interest is calculated using the daily balance method, and banks typically credit interest monthly or quarterly.

Money Market Account

Money market accounts offer higher interest rates than regular savings accounts. They also provide more flexibility in terms of withdrawals and usually offer tiered savings, meaning the interest rate increases as your savings grow. Interest is calculated using the daily balance method, and banks typically credit interest on the final day of each statement period.

Certificate of Deposit (CD)

CDs are low-risk savings options that offer a set interest rate for a specific term, ranging from 14 days to 5 years or more. They are among the safest investments you can make, and the interest rate is determined ahead of time. Interest is compounded daily and credited monthly or quarterly. However, if you withdraw funds before the account matures, you will be subject to early withdrawal penalties.

Christmas Club Account

A Christmas Club account is a great way to save for holiday expenses such as gifts, travel, and parties. These accounts typically require a minimal amount to establish the account and offer competitive interest rates, which begin accruing on the first business day after the initial deposit. Interest is compounded daily and credited monthly or quarterly, and the payout usually takes place close to the holidays.

Individual Retirement Account (IRA)

An IRA is a savings account designed for retirement purposes. Traditional, Roth, and 401(k) are the most common types of IRAs. Traditional IRAs are funded using after-taxed dollars as a deductible contribution, while Roth IRAs are funded with after-tax dollars. 401(k) is directly withdrawn from an individual’s paycheck pre-taxed and deposited in an employer plan, which is available after the employee leaves the job.

In conclusion, choosing the right savings account is vital to achieving your financial goals. Take the time to understand the different types of accounts and their benefits, and choose the one that suits your needs. Remember, saving for the future is always a smart financial decision, and Financial Education Month is the perfect time to start.