The New Rules of Savings Accounts

Looking for a silver lining of the recession? Our national savings rate has crept up to around five percent – the highest it’s been since 1995 (and still way too low, Carmen says). As more people are stashing away some cash, there are more options than ever for where to pit. Greg McBride of weighs the pros and cons of the major savings vehicles:

1. Checking accounts. Everyone needs a transaction account, but finding the right checking account is like finding a spouse – it has to be compatible with your financial life. If you choose a reward account with a high return, be prepared for strict requirements. Generally, there are very low rates of return on checking accounts.

2. High-yield savings accounts. Everyone needs one of these for their emergency funds, McBride says. They offer higher rates of return (just make sure the account is FDIC-insured, risk-free, liquid and that it gives you a return that outpaces inflation). But rememkner that the best returns will not be at the biggest banks in town.

3. Money markets. Everyone is a candidate. There are two different types of money markets – money market deposited funds (FDIC-insured) and money market neutral funds (through a brokerage firm). These can be great as temporary parking places for emergency savings but, right now at least, the return on money markets is next to nothing.

4. CDs. More people are turning to CDs because of the volatility in the market. They let you lock in a rate of return so you know what you’re getting but CDs longer than one year are not attractive because any pickup in inflation will eat at the return.