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You’ve been following the Central Bank of Barbados’ MoneySmart financial literacy programme and are now inspired to set some financial goals for yourself. You know that achieving these goals begins with saving, so you decide to open a savings account. As you start to do your research, you realise that Barbados’ banks, credit unions, and other financial institutions offer different types of accounts, which makes you wonder, “Which of these accounts is right for me?”
To help you decide, our MoneySmart advice columnist breaks down four common savings accounts and what type of goal each is best suited for.
A regular savings account earns a relatively low interest rate but allows you to withdraw your funds at any time.
Banks also tend to have specially designed versions of these accounts for children and senior citizens that may offer somewhat more attractive features and benefits, including lower or fewer fees. When they do, there are maximum age limits for youth accounts and minimum age limits for senior accounts. These will be set by the financial institution.
Regular savings accounts are good for persons who may want or need to access their money regularly, making them a good option to use as your everyday account.
An enhanced or premium savings account is similar to a regular savings account but earns a higher interest rate. These types of accounts also offer easy access to your cash, but they usually come with restrictions such as maintaining a minimum balance.
Like regular savings accounts, premium savings accounts can be a good option to make transactions from on a daily basis, but make sure you remain above the minimum balance.
A term deposit is also known as a certificate of deposit or time deposit. With this type of account, you deposit a specific sum of money – there is often a minimum amount you must put in – for a predetermined period of time – the period can range from one to five years – and earn a fixed interest rate.
The interest rate on a term deposit is normally higher than you would get on a regular savings account. However, your access to your money is restricted for the duration of the term and generally only accessible at the end of the period. Should you withdraw the funds early, which is also known as “breaking the deposit,” there will be a penalty. That penalty could include losing a portion of the interest on the deposit.
For that reason, term deposits are best suited for people saving for long-term financial goals.
A call account, also known as a call deposit or money market account, provides the features from both savings and chequing accounts. This type of account allows for periodic deposits and withdrawals and offers a higher interest rate than a regular savings account.
However, most call accounts require a minimum deposit, and they may come with restrictions that make them less flexible than regular savings accounts. For example, there may be limitations on the number of withdrawals within a particular period. At the same time, they are more flexible than a term deposit, where withdrawals are restricted. Call accounts are best suited for short-term financial goals.
Most financial institutions offer multiple savings account options. To determine which one is right for you, consider the benefits and features they each offer and match them against both your personal circumstances and your savings goals.
Visit our MoneySmart hub for more articles, videos, and tips on how to secure your finances. Have a specific question you’d like answered? Submit it and it could be answered in our Ask the Expert column.