Savings account vs. money market vs. cd

Which is right for you?

Learn the pros and cons, and the differences, between these types of savings options to find the best fit for your lifestyle.

A savings account provides interest over time on the amount of money you keep in your account. These accounts are NCUA-insured and offer a safe place to deposit money that provides a very modest return. There is essentially no risk to using a savings account, and many people use theirs to save up for large purchases, or as a place to keep their emergency funds. Here’s how it works and what you may want to use a savings account for.

How a Savings Account Works

When you deposit money into a savings account, you’re allowing the credit union to take your funds and lend them to other members that are part of their not-for-profit financial cooperative, while guaranteeing that your money will be available to you when you withdraw it. A savings account will pay a modest annual percentage yield (APY) to your account as a reward for parking your funds with the bank or credit union. Your APY in a savings account can range from 0.10% to 1% or more in a high-yield savings account.

Your savings account will typically have specific rules prohibiting how often you can pull funds out of the account. Unless you’re trying to use a savings account similar to how you would use your checking account, these limitations are generally pretty doable and still leave your money accessible when you need it.

Most credit unions or banks will offer you savings account options because typically, the money they receive in deposits is what they invest into loan programs. This is a good investment for the credit union to offer a higher APY than you would receive with a checking account in order for them to receive funds that, on average, will remain with the financial institution for longer.

The rates on a savings account can fluctuate due to the changes in interest rates and the economy’s overall performance. Some accounts will require a minimum balance to open and maintain the savings account. Still, the deposits will work like a checking account and can easily be made online through your digital banking app.

Pros and Cons of a Savings Account

A savings account is a favorable option for consumers looking to put money into a safe investment with little to no risk. Here are some of the pros and cons of using a savings account:

Pros of a savings account

— Interest: You can earn a higher interest rate with a savings account than a standard checking or deposit account.

— Protection: Your funds will be protected and safe when held in an NCUA-insured account.

— Accessibility: You can keep a savings account at the same financial institution you hold your checking account. This helps make transferring money back and forth, as needed, extremely fast and easy. 

Cons of a savings account

— Low investment reward: As an investment, a savings account provides very little return on your money.

— Frequency of transactions: Most savings accounts restrict the frequency of your withdrawals. This could be an issue if you plan on dipping into your savings every month.


Types of Savings Accounts

While traditional savings accounts are pretty straightforward, there are multiple types of savings accounts where you might benefit. Each type of account has a specific purpose that can help you in a very specific way. Here are the most popular types of savings accounts.

Traditional Savings: This is the typical savings account you’ll find at a local bank or credit union, and it is easily accessible.

Money Market Accounts: money market pays a return similar to a savings account but provides accessibility features similar to a checking account. 

Certificate of Deposit (CD): A CD is an investment that pays a higher-than-average deposit return for using your money for a specific period of time. View current CD Rates. When you buy a 1-year CD from your credit union, you’re agreeing to let the credit union use your money for a year without withdrawing it in exchange for a specific guaranteed return. 

Other Options: (not currently offered at Infinity CU):

High-Yield Savings Account: This savings account provides a higher than normal APY for the money you keep in the account. The tradeoff from a traditional account is that you may be more restricted in withdrawals.

Health Savings Account: An HSA is used to pay for healthcare-related expenses. The money put into the account isn’t taxed, but you can only withdraw the funds to pay for those specific expenses. You can only qualify for an HSA if you have a high deductible health plan.

Savings Bonds: A savings bond is a government-issued security with a guaranteed value by the federal government. You can’t lose more than you initially invested, and the amount your bond is worth typically goes up slowly over time.


When to Use a Savings Account

The right savings account for you is going to depend on your financial situation and what you plan on using the account for. You may want to use a savings account to pay for living expenses as they come up, such as unexpected healthcare expenses, or you may just be looking for a safe investment over the next year. Both situations would likely require a much different solution.

Here are the most common uses of a savings account:

Emergency Funds: An emergency fund is used to pay for large, unexpected expenses. For example, if you lose your job, an emergency fund can typically pay your expenses for 3-6 months afterward as you look for new employment.

Rainy Day Fund: A rainy day fund helps you pay for the small, unexpected expenses that come up in your daily life, such as paying for a broken dishwasher. Having a rainy day fund can prevent you from putting these expenses on a credit card. 

Pay for Healthcare Expenses: Many people put money away in a savings account to prepare for healthcare expenses for themselves or their children.

Invest for Short-Term Gains: Some individuals want to invest in something safe that provides a larger return than a standard checking account.

The Bottom Line

A savings account is a deposit account offered by a credit union or financial institution to help you save money for future things. These accounts can provide a more significant return than a checking account while still being FDIC-insured deposit accounts. Many people use a savings account to prepare for unexpected expenses, make large purchases, or keep their money safe. No matter your need, a savings account can be an excellent place to keep your money.


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