There's so much more out there than just the savings accounts you probably started when you were a kid (although we're not saying that they should always be overlooked). How you save and the types of accounts you use depend on what you are saving for—and how often you want (or have) to tap into your cash flow, for that matter.
Hear about the pros and cons of the different types of savings accounts below.
Basic Savings Account
This is the type of savings account your parents likely started for you at the bank when you were a kid. The benefits of these are the security and the fact that they're easy to liquidate. Plus, when you have an account at a brick-and-mortar bank, it becomes easier to take out cash or transfer between your accounts.
Pros: Security; easy withdrawals; savings are liquid
Cons: Often requires a minimum balance; low interest rate
Online Savings Account
If you're willing to forego having a brick-and-mortar bank, an online savings account typically has the highest interest rate (yes, seriously). They can offer this because they don't have to pay rent on buildings and the like. However, if you're looking for convenience, this may not be the option for you. Transfers to your local checking account can take up to three days at some of these institutions.
Pros: A high interest rate, low to no monthly fees; no minimum balance
Cons: No brick-and-mortar locations; slow transfers
Certificates of Deposit
Certificates of deposit or CDs—not the contraptions you used to listen to music on—are a variation on a savings account. Basically, the main difference is that you can't touch the money in that account for a fixed period of time ranging from a month to five years. If you do, you will have to pay a penalty, so it should only be for money that you're not planning to withdraw. In case of an emergency, it's wise to have a slush fund in the form of a basic savings account that you can tap into in case you lose your job (or something similar). However, the perk is that this type of savings account earns you much higher interest than you would reap from a basic savings account.
Pros: Higher interest rate
Cons: Not liquid; must pay fees if you withdraw early
Money Market Account
A money market account, also known as an MMA, is another type of savings account through a bank. This type often requires a minimum balance (that's usually around $1,000 or more). The good news is that it is sort of a hybrid between a savings and a checking account—with most you can write checks, withdraw cash, and use a debit card to access your money.
Pros: Higher interest; debit card, check, and cash withdrawals
Cons: Minimum balance often required
A Tip For Saving
If you have a hard time allocating savings every month, setting up an automatic savings plan through your bank can be a great idea. You can allocate a portion of your checking account to automatically go into a separate savings account each month. You know that saying "Pay yourself first"? Well, that's exactly what this allows you to do. While the interest rate may not be as high as other options, you can always transfer it into different types of savings accounts after the fact.