When you open a savings account with any bank, you will certainly consider the perks and benefits that the bank will offer you. The first question that comes to mind in such a situation is which type of account has the highest interest rate.
You must be aware of the different types of savings accounts available from banks. Having a clear overview of the accounts will clear any doubts about which one will provide you with the best returns.
What is a Savings Account in Banks?
A savings account, in its most basic form, is simply a place to keep money. You deposit funds into the account, earn interest, and withdraw funds as needed. You can add money to your account as often as you want, but there are some restrictions on how frequently you can withdraw or transfer money: Preauthorized withdrawals or transfers are limited to six times per month, but in-person withdrawals and transfers are unlimited.
Types of savings accounts
Most banks have these three:
1.Regular savings account
Earns interest and provides quick access to your funds. Opening a deposit savings account is the most straightforward way to accumulate funds in a bank. The deposit savings account, also known as a transactional savings account, offers a competitive interest rate on funds deposited in a bank. Opening such an account necessitates depositing a small amount of money as a minimum. The best part is that you won’t have to pay any minimum deposit fees as long as you keep the account active.
2.Money market account
Money market accounts are very similar to deposit accounts. The money you deposit in the bank earns interest, and the amount grows. The difference with this type of account is that you must make a much larger initial deposit. If your balance falls below the minimum amount, the bank will charge you a fee.
3.Certificate of deposit
This is a type of bank account that typically offers a higher interest rate in exchange for the agreement to deposit your money for a specified period of time. A specific amount of time is referred to as a duration or term. This maturation period can last anywhere from a few months to ten years. Some banks have special terms in place. When general interest rates have risen during the maturation period, such terms allow people to add more money to the account or raise the rate.
Which type of bank account will typically have the highest interest rate?
A Certificate of Deposit (CD) is a type of account with the highest interest rate because it has the least level of flexibility in terms of usage. As a result, a customer cannot withdraw the funds until the deposit reaches its maturity; otherwise, the customer will be penalized.
Certificate of Deposit is a low liquidity account with a penalty for premature money withdrawal, and it is the most secure way to save money. Different banks and credit unions offer different interest rates on CDs.
When evaluating savings accounts, it is important to consider the amount of money that can be deposited right away, the frequency with which the money must be accessed, and the ability to write checks against one’s balance. The most important concern for a bank customer, however, is the relevance of the interest rate.
What types of transactions can you perform with high interest savings accounts?
With a high interest savings account, you can make:
- Deposits (cash and cheques)
- Withdrawals (at ATMs, bank tellers, in stores, etc.)
- One-time payments for goods and services
- One-time bill payments
- Pre-authorized payments (insurance, mortgage, rent, utilities, etc.)
- Transfers (between two users of same lending institution)
- E-mail money transfers (both send and receive)