6 Types Of Financial Savings Accounts For Small Businesses

Everyone has their own needs and plans that require the use of money. Then, a savings account will act as an emergency asset or separate funds to help you pay off bank loans when doing business, buying a house during a recession or purchasing a car, etc.

You are not sure which type of savings account to choose that suits your needs and financial capabilities? There are many ways to save money, such as Traditional or Regular Savings Account, High-Yield Savings Account (APY coin), Money Market Accounts, Certificate of Deposit Account, Cash Management Account, and Specialty Savings Account.

The article below will analyze the strengths and weaknesses of each type of savings account mentioned above.

Traditional Or Regular Savings Account

If you need to save money without worrying about the annual interest rate (APY annual percentage), the Traditional or Regular Savings Account is suitable.

Traditional savings accounts are usually offered at conventional banks or credit unions. You will receive a deposit rate with interest according to the bank’s regulations, and each bank will have a different interest rate. You need to compare the annual interest rates between banks and choose a suitable savings place.

However, this type of savings account usually has a lower interest rate than other types of savings. Each bank will have a maximum monthly withdrawal limit for customers’ savings deposits (not including automated teller machine [ATM] withdrawals or direct withdrawals at bank branches), exceeding the number of withdrawals according to regulations. You can manage your savings account online, via a mobile app, or at a branch banking.

Some banks are insured with the Federal Deposit Insurance Corporation (FDIC). If you choose to deposit your savings in these banks, the bank will insure your deposit. The insurance amount can be up to 250,000 USD for each saver with one account category in case of bank failure.

Credit unions are similarly insured with The National Credit Union Administration (NCUA). The states now run most credit unions. So choosing to deposit savings here will be very safe.

Pros

• Opening an account is easy: you can open an account at a bank branch or do the procedure to open an account online.
• Earn profit from annual deposit interest.
• If there is a problem, you can go to the bank branch for help.
• You can deposit cash directly at a bank branch.

Cons

• Interest rates are lower than other types of savings accounts.
• Some banks will charge a monthly account maintenance fee.
• If you exceed your monthly withdrawal limit, you will be charged additional fees.

High-Yield Savings Account

A High-Yield Savings Account is a savings deposit with a higher annual interest rate than traditional savings accounts. If you are not a traditional person, you are satisfied and prefer to manage your savings account through online banking on your website or mobile app instead of going to a bank branch. You should choose a High-Yield Savings Account.

High-Yield Savings Account has also registered with FDIC or NCUA insurance like a regular account. Online banks will charge a monthly maintenance fee, lower excess withdrawal fees, and have better rates than traditional forms of savings.

Pros

• Interest rates are much higher than regular savings accounts.
• The minimum deposit to open a savings account at online banks is relatively low.
• Most online banks do not charge a monthly savings account maintenance fee.

Cons

• You cannot deposit cash directly into a savings account.
• Transferring funds between an online savings account and an account at another bank can take several days.
• Depending on the regulations of each bank, you may not be able to get cash for business via ATM.

Money Market Accounts

Money Market Accounts have both features of a regular savings account with elements of a checking account. All banks (traditional and online) offer this account service. MMA allows you to receive interest on your savings deposit at a better rate than a regular savings account. This account provides writing checks and uses an ATM or debit card.

Your bank will charge you a fee to exceed the monthly withdrawal limit or close your savings account if you violate it regularly.

Pros

• Better rates than a traditional savings account.
• Allows writing checks, using ATM or debit cards.
• Easy to open MMA at traditional banks or online banking.

Cons

• The minimum deposit to open MMA at banks is relatively high.
• The interest rate you receive will depend on your savings account balance. The larger the proportion, the higher the interest rate.
• Banks charge a monthly fee for this type of savings.

Certificate Of Deposit Account

You deposit money in the Certificate of Deposit Account within the commitment period with the bank. You will receive interest when the Certificate of Deposit matures. You can withdraw your savings or continue to deposit in a new Certificate of Deposit to earn interest. Certificate of Deposit Account of an online bank has a better interest rate than a traditional bank.

This type of savings is suitable for those who want to earn good deposit interest and do not need to use the principal amount of the savings deposit immediately. Banks will charge an early withdrawal penalty if you withdraw your savings before the due date. The minimum term of Certificate of Deposit is 30 days. The most extended CD term is up to 60 months. Longer maturities will usually offer higher interest rates.

Pros

• Savers will receive higher-than-average interest rates.
• No monthly maintenance fee.
• Certificate of Deposit Account at online banking requires a lower minimum deposit.

Cons

• Penalties according to regulations if withdrawing money before the due date.
• Certificate of Deposit Accounts at traditional banks has lower interest rates than online banks.
• If you deposit your savings into a long-term Certificate of Deposit Account, you may miss out on future interest rate hikes.

Cash Management Account

A Cash Management Account is not called a savings account. This account is simply for storing cash. This account is suitable for people who want to use some money to invest in their brokerage or retirement account.

Online brokerages and Robo-advisor platforms provide Cash Management Accounts for investors. You will earn a higher interest rate than a bank savings account when you keep money in an account.

Each brokerage will have different features like writing checks, paying bills, or transferring money to a bank account. It’s basically like owning a free checking account.

Pros

• You can earn a profit from the invested amount.
• Have the same benefits and features as checking and savings accounts.
• Some accounts are FDIC-insured (when a third-party bank provides the account).

Cons

• Interest rates are not as reasonable as savings accounts.
• You cannot access branch banking because your account is tied to online brokerage accounts.
• Not all accounts are FDIC insured.

Specialty Savings Account

The Specialty Savings Account will help you achieve a specific savings goal. Examples: children’s savings accounts, custodial savings accounts, student savings accounts, Christmas Club savings accounts, Paying Home Savings Savings Accounts, Retirement Accounts Traditional Personal Account, and Roth, Health Savings Account (HSA).

Some banks, credit unions, brokerage firms, or investment firms offer these types of accounts. Specialty savings accounts are not only meant to save money but have other personal meanings as well. However, you will encounter restrictions on when and how you withdraw your funds.

Pros

• Specialty savings accounts are used for many specific financial goals.
• You can profit from this account just like other types of savings accounts.
• Low monthly maintenance fee.

Cons

• Some special accounts have strict tax rules for making withdrawals.
• Interest rates are lower than other types of savings accounts.
• There are restrictions on who can open an account.

Depending on your short-term and long-term financial goals, you can choose from multiple savings accounts for your various purposes. The critical thing to keep in mind is to ensure the desired interest rate and possible fees to avoid losing your investment.