Child savings accounts carry interest rates up to 5% but have the limitation of only being available to children. Their use is teaching children good savings habits and building a fund that can give a boost to the young adult, for finding a partner or for going to university. One of the parents needs to co-sign any transaction the child performs, but the child gets to keep the passbook and see how much their fund is growing.
Conventional savings accounts break down further into a variety of different accounts tailored for different needs. Typical interest rates are between 0.25% and 0.75%, and are often on a tiered basis – the more money is kept in the account, the higher the interest rate offered. Depending on the amount of savings some are also tax exempt which allows the bank to offer a better rate.
Online accounts have rates normally between 1.5% and 2% since the bank does not need to worry about maintaining branches and other overheads to run these accounts. These accounts also normally require a checking account to already be held with a bank, which is linked for transferring money from the checking account on a regular schedule.
It is not a requirement for a savings account that the saver uses the same bank as they use for everyday banking. All banks are now capable of moving money in between each other very quickly and easily. However, if your account is with a different bank, something to remember is that both banks may charge fees to transfer between them; normally these are small, but if for any reason a transaction fails the resulting charges can be substantial. Holding a savings account with the bank that you deal with on a day to day basis for checking or credit cards normally eliminates many if not all of these fees.
A factor someone shopping around for the best account for their purposes should consider is how quickly they can get hold of their money in the event of a crisis that needs it. Many high interest saving accounts require a period of notice of withdrawal, especially for large amounts, but some also make use of clearing houses – this is especially the case with online savings accounts – where the money is in financial limbo for the period of time taken to clear. It does not earn interest, and is not available in either the savings account or the destination account, with some accounts this can be up to ten bank working days; two weeks plus any holidays, as banks do not generally consider Saturday a working day.
It is possible to pay bills direct from savings, but care should be taken when setting this up. There is a regulation in the United States called Regulation D, 12 CFR 204.2(d)(2) which limits the number of pre-authorized transactions that a savings account can make each month. Withdrawals in person or ATM withdrawals are exempt from this limit, but it should be considered as a factor as making more automated withdrawals than is allowed may carry a large penalty or in some cases automatically convert the account to a standard checking account that does not accrue interest at all. Deposits are also entirely exempt from these limits; an account holder may deposit money into their account as often as they wish without government penalty, though some banks may charge for any transactions beyond the first set number in any given month.
Like any other choice to be made in life, the choice of which savings account to use should not be made lightly. This is, after all, the account that an investor will be looking to use for a long period of time, often many decades. With this in mind it is worthwhile getting as much detail from as many banks as possible before making a decision. A good account, tailored well to the needs of the investor, is a worthwhile investment that can last a lifetime, and provide a financial safety net for the future.