What Kind of Savings Account Do You Need?

By definition, the purpose of having a savings account is to give you a safe place to park your cash. Depending on your needs, you could use a savings account to start your emergency fund, save for your dream vacation or build up a down payment for your first home. There are a few different types of savings accounts to choose from but finding the right one doesn’t have to be difficult. Below, we review the basics of various savings options.

Do you have questions about saving for the future? Speak with a financial advisor today.

Traditional and Online Savings Accounts

A regular savings account, such as the high-yield savings account from American Express or Ally Bank’s online savings account, is the most basic option for squirreling away your extra pennies. Depending on your preference, you can open a traditional savings account online or at your local bank or credit union.

Regular savings accounts are interest-bearing, although the rates are relatively low. You may be able to snag a slightly higher interest rate if you opt for an online savings account versus one at a brick-and-mortar bank.

When you open a savings account, you may have the option of linking it to your checking account to allow for easy transfers or overdraft protection. You will not be able to write checks directly from your savings, so linking your accounts is a smart move if you need convenient access to the money. You should also keep in mind that you may be limited to a certain amount of transfers or withdrawals from your savings per month. If you go over the limit, your bank may charge an account fee or convert your account to standard checking.

Money Market Account

If you’re looking for a little more flexibility, money market accounts offer a few advantages over a traditional savings account. Generally, you can expect the interest rate for a money market account to be slightly higher. The rates are tiered, which means the more money you keep in your account the better your rate will be.

A money market account comes with check-writing privileges, and some banks may also allow you to link a debit card to your account.

Be aware that many banks require a higher minimum deposit to open a money market account when compared with a traditional savings account. This varies from bank to bank, though. Some accounts, like Marcus by Goldman Sachs, don’t require any minimum deposit. This could be great for you if you want to start saving but don’t have much accumulated yet. Other banks may require higher minimum deposits to open a money market account.

Banks may also require you to maintain a minimum monthly balance. If your balance dips below the minimum, you will have to pay a fee, which is typically higher than the one for a traditional savings account.

Custodial Savings Account

A father and daughter putting coins into a piggy bank.

A custodial savings account is a special kind of savings account that parents can establish for their kids. Anyone can put money into the account, but the child can only make withdrawals with permission from the person who set it up. When the child turns 18 or 21, depending on the state they live in, the custodian is responsible for distributing the rest of the money in the account directly to them.

The money you put into a custodial savings account can be used to purchase different investments, including stocks and mutual funds. Since the money technically belongs to your child, they are responsible for paying taxes on any earnings above a certain limit. For 2025, the threshold limits are $2,600, respectively. Anything over this is taxed at the parent’s highest tax rate.

Parents who open a custodial account also need to watch out for the gift tax. Gift tax applies when you give someone money or property that exceeds the IRS exclusion limit. For 2025, the exclusion limit are set at $19,000. This means anything over that amount may be subject to gift tax.

Christmas Club Account

While their popularity has declined somewhat, there are banks that still offer Christmas club accounts for customers who want to set aside money for their holiday shopping. The idea is to stash away a small amount all year. Generally, you don’t need a lot of money to set up this type of account and you can schedule regular transfers from your checking account ahead of time.

Once you reach a specific cut-off date, you’ll be able to cash out your account and hit the mall. These accounts may earn a little more interest than a regular savings account and the fees, if any, are usually very low. If you want to start saving now for the holiday season, a Christmas club account is a stress-free way to do it.

Certificate of Deposit

A certificate of deposit (CD) is another way to save while earning a little interest. Your money goes into the CD for a set period of time, and once it matures, you can take the cash out along with the interest. The longer the maturity period, the more interest you earn. If you withdraw the money early, you may have to pay a penalty.

Compared to regular savings or money market accounts, CDs offer the highest interest rates overall and are considered one of the safest types of investments. If you are considering a CD, you have many options. You could go with a major bank, such as Barclays, or an entirely online bank, like Synchrony. Make sure to shop around so you can find the best savings rate for the CD length that you want.

A savings account is an important component of your overall financial plan. Weighing the pros and cons of each type of account beforehand can help you decide which one is the best match for your situation.

How to Match a Savings Account to Your Goals

When picking a savings account, first consider the purpose of your savings. If you are building an emergency fund, look for a high-yield savings account that offers easy access and a competitive interest rate. These accounts are often available through online banks and typically have fewer fees than traditional accounts. For short-term goals—such as saving for a vacation or home improvement loans—regular savings accounts or money market accounts may also work well, offering moderate interest and limited withdrawal restrictions.

Next, think about how often you will need to access the money. If you will not need the funds for a fixed period, a certificate of deposit (CD) may be a better option. CDs usually pay higher interest rates than regular savings accounts, but they require you to leave your money untouched for a set time, and withdrawing early often triggers a penalty. CDs can be a fit for savers who want to lock in a rate and will not need immediate access to their funds.

For specific or long-term goals—such as saving for a child’s future expenses—you might consider a custodial savings account. This type of account allows parents or guardians to set money aside for a minor until they reach adulthood. If your goal is tied to seasonal spending, like holiday shopping, a Christmas club account could help you automate your savings throughout the year.

Bottom Line

A couple reviewing their savings account balance.

“Savings” is a catch-all term that identifies a number of different versions of accounts. Knowing which of them is best for your situation can help you maximize your gains over the years. Doing this can also play an integral role in your long-term retirement plans, as most people will park their emergency savings in their savings account.

Banking Tips for Your Financial Plan

Unsure of if your bank accounts are helpful to your overall financial plan? A financial advisor can help you optimize this. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Consistently ensuring you’re maximizing your savings rate can be extremely helpful over the long term. Check out SmartAsset’s list of the best savings accounts to learn more.