Learn of the different types of savings accounts including child, health, high yield, regular, retirement, and more.
The Different Types of Savings Accounts
The various kinds of savings accounts that banks offer to their customers. We will detail these different savings products later, but first let us understand what is a savings account. It is a deposit account maintained at banks or other financial institutions that offer basic monetary security and a fixed interest rate. It is the simplest type of bank account that is available to the customers. Choosing the right savings account is important. The different personal savings accounts are as follows:
- Child savings account
- Health savings account
- High yield savings accounts
- Retirement savings
- Student savings account
CHILD SAVINGS ACCOUNT
This type of account is just like a regular saving account offered by banks and other financial institutions except for some special benefits. Although there are a few variations, they are basically safe cash accounts that earn some interest. It is meant for children under 18 years. Such can be a account with the child’s parents. Tax is usually deducted from this type of account. However, you can claim the amount deducted as tax because a child does not earn enough money that makes him/her eligible to pay tax.
- The benefits of the account
Your child will accumulate a significant amount of money over the years. Most people open this type of account for their children because they want to save money that will help them in future. Making small savings every month for your child can make him/her have a huge sum of money to use by the time he/she wants to go to college or when he/she turns 18.
- A child savings account will make a child more money aware. Your child will know the value of money. This account will help him/her know the importance of saving money. It is important to start early to make your child develop a good saving habit so that he/she can start saving some pocket money or the cash given as presents when he/she gets older. A small saving account can really change how a child thinks about his/her future. Going to college will seem like an attainable goal for children who are from middle income families. There are different types of savings accounts for children including student account and others. Each type of account has its own benefits.
HEALTH SAVINGS ACCOUNT
Health savings accounts are just like personal regular savings accounts. The only difference is the fact that money you keep in your health savings account (HSA) is used to cater for your healthcare expenses. You are the one with full control over your HSA. Your employer or insurer does not have any control. To make yourself eligible to open this type of account, you should have a special type of health insurance commonly referred to as “a high-deductible plan”. These accounts were created to help to control people’s healthcare costs.
Is a health savings account right for you?
The health savings account has a lot of benefits. All the withdrawals that you make from your account to pay for medical expenses will not be taxed. This includes the money that you use for dental and vision treatments. You will also not pay tax if you use the interest earned to pay for medical expenses. Opening this type of account is a great move if you are healthy but you want to save for future medical expenses. However, if you think that you will need expensive medical care soon, the HSA will not be the best option for you.
Advantages of health savings accounts
- You have total control of how the money in your account will be spent.
- You decide how much money you are going to set aside.
- Your employer can make contributions but you will still own the account even if you decide to change jobs.
- The money going to your HSA will not be taxed.
- The money in the account rolls over to the next year if it’s not used.
Disadvantages of health savings accounts
- It is impossible to predict the future. This makes it difficult to budget for health care expenses.
- Pressure to put money in your HSA can prevent you from seeking medical help when you need it.
HIGH YIELD SAVINGS ACCOUNT
Most people think that opening a savings account is the first step when they want to take control of personal finances. It is true that this is so. However, traditional savings accounts earn very little interest. When you factor in inflation, you will realize that you might end up losing money when you put your money in a basic savings account. This is where the High Yield Savings accounts come in. These accounts pay a significantly higher amount of interest. High yield Savings account interest rates will help you meet your goals faster. There are certain things that you should be concerned about when you want a High-Yield Savings account. These things include:
- The rate of interest paid: How much interest are you going to earn on your deposit? This is question that you must find an answer to when you want to open this type o account. It will indeed be at a rate higher that the standard savings account. You should also check how long the interest rate that you are promised will last. Ask whether the interest rate quested is just an introductory rate or if it’s going to change at some point.
- The requited initial deposit: How much money will you be asked to deposit when you are opening an account?
- Minimum balance required: How much balance are you required to maintain in the account to benefit from the advertised high interest rates?
- Compounding method: How will the interest rates be compounded? Will it annually, semiannually, quarterly or monthly? The formula used determines how much money you are going to have at the end of a given period of time.
- Account set up and maintenance fee: How much money will you be asked to pay to set up and maintain your high interest savings account? Make sure that you are not dealing with a financial institution that charges very high fees.
- Accessing funds: What option can you use to aces your funds? Will you be able to use an ATM? How much will you be charged per withdrawal? Makes sure that you have all the information about the account you intend to open. You have to be sure that you are making the right choice.
RETIREMENT SAVINGS ACCOUNT
Are you looking for the best place to put your retirement savings? Well, a retirement savings account should be on top of your list of the best places to keep your retirement money. But what is a retirement savings account? This is a type of retirement plan account that is envisioned to replace all the three different types of individual retirement accounts that are currently in use in most parts of the world. The following therefore, is a list of the most essential retirement savings accounts you should consider having:
- HSA Account: This is a health spending retirement account and which essentially functions like a traditional IRA health care account which Is meant for health care spending which includes doctor visits, medications geared towards prescription by the doctor, eye care, dental and any other related costs. The advantage of this type of account is tat whatever not spent by the age of sixty five can be refunded in full and be used just like in any other type of account other than retirement savings account.
- Traditional IRA: This is a type of account which is set up at a financial institution allowing an individual to save for retirement with a tax-free growth or on a tax-deferred basis. There are three types of IRA accounts namely, Roth, Traditional and Rollover retirement savings account. IRA stands for individual retirement account and it basically is a savings account with big tax breaks which makes it the best choice for your retirement savings. This is a sock in which retirement money can be kept and in which there is no problem whatsoever since it copes well with the kind of people using them, which is retirees.
STUDENT SAVINGS ACCOUNT
A student savings account is an account that earns interest and whose holder is a college student. As a student, a savings account will help you to accumulate money and build credit name with bankers so that in future, you will be in a position to borrow loans easily since the money lender will know of your financial history, hence, they will give you the loan with ease. On the other hand, living away from home gives you the opportunity to take the initiative of making major financial decisions in future. The following therefore, are the tips that will make it easier for you to make payments for the essentials. There are several benefits, as follows:
- You can write checks on a checking savings account: If you are a student and you are in the quest for paying your bills or electronically make a purchase, one ultimate method will be opening a checking savings account. Checking account will allow you to make a deposit or withdrawal of funds easily, and if you posses and use a debit card, you will be able to make payments with the card just as well as you would with cash.
- You can apply for a student credit card: Student credit cards may be granted or offered to adults who are still young and energetic but with limited credit history and some of these cards come with temporary interest rates or even rewards options. As the requirements for qualification for a credit card varies from one lender to the other, the requirements for qualification for a savings account is kind of universal since what you need is the required age and you are good to go so long as you are a college or a university student.
- Helps you to save: As a student, such a savings account is a good avenue to accumulate funds and earn interest. A savings account will help you as a student to save not only for the next semester’s fees and books spending but also for other personal needs like buying personal clothing and other many things you might be in need of in the near future.