- A savings account is an account at bank or credit union in which money is placed to earn interest. Funds may be accessible, but some types of savings accounts may charge penalties or fees if money is drawn out too early or too often. Money market fund companies may also offer types of savings accounts, and more interest may be drawn on these types of accounts. Finally, savings accounts are considered safe place to store money. The money is secure under the FDIC laws.
- Many national and local banks offer student savings accounts and do not usually require a large deposit to start the account. Fees are minimal, making these accounts an easily accessible option for many students. Traditional student savings accounts allow students to have access to their money at any time in a bank branch or at an ATM; these accounts can be linked to a student checking account. These accounts do not generate a lot of interest, but if a student can maintain a balance and not make frequent withdrawals, interest can add up.
- Money market accounts tend to have higher interest rates than traditional savings accounts. Money market accounts may be not specifically be a savings account, but just like a savings account, the money deposited earns interest and is FDIC insured. While the accounts have higher interest rates, they also may charge monthly maintenance fees. Student money market accounts are best for students who have a high balance or a significant amount of money to deposit. Fees may be steep for this type of account, and if a balance is not high, the student may lose money in this type of account. Starting this type of savings account may require a deposit of $10,000 or more.
- A certificate of deposit is similar to a savings account in that money is deposited for a pre-determined period of time. During that time the money earns interest and is FDIC insured. The pre-determined amount of time may be months or years, and fees will be charged if the student cashes a CD in earlier than the maturity date. The student is essentially lending money to the bank, and the bank gives the student a promissory note (or certificate of deposit) that indicates what interest rate will be earned during the amount of time that the money is in the bank. This type of savings method is geared toward students who do not need access to their money and who able to leave the money in the account for the pre-determined time period. If a student cashes the CD early, there will be penalties and fees involved.