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Banking

The Different Types of Savings Accounts

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Opening a savings account might sound simple, but there are many types of savings accounts available, for both individuals and businesses.

While checking accounts are intended for everyday purchases, savings accounts are meant to be accessed less frequently. Some are ideal for short-term savings, such as emergency funds, while others are better for long-term goals like retirement.

There are traditional and online savings accounts, as well as accounts that generate more interest but have more restrictions, such as money markets and certificates of deposit.

If you’re saving for health expenses, there are tax-friendly flexible spending accounts and health savings accounts. If you’re stashing cash for your children’s college education, there are 529 plans. Lastly, if your savings are for retirement, there are a few tax-advantaged plans from which to choose.

Not sure which type of savings account you need? Read on as we explain your options.

Traditional savings accounts

When you think of a savings account, this is likely the type that comes to mind. You can open one at a bank or credit union, usually with a low minimum.

You can typically contribute as much as you’d like — though it is usually insured only up to $250,000 — but it most likely doesn’t come with a debit card or checks. Also, due to federal regulations, you can only withdraw or transfer funds six times a month. Checking accounts don’t have these restrictions, which is why they can be better for day-to-day spending.

While traditional savings accounts are often interest-bearing, their interest rates are usually very low — the average is 0.26% for brick-and-mortar banks and 0.23% for credit unions. Some financial institutions offer savings account bonuses, though there’s typically a minimum deposit required to qualify.

Online savings accounts

Online bank accounts are just as safe as those offered by brick-and-mortar financial institutions, and they usually come with higher interest rates and lower fees.

You can find interest rates for online-only savings accounts at 1.70% or above. Without in-person branches, they have lower overhead and can afford to pay out better APYs.

If you’re the type of person who prefers face-to-face transactions, stick with a traditional bank or credit union. But if your priority is nabbing a high interest rate to help your savings grow, an online savings account is a better option.

Money market accounts

Depending on the bank, money market accounts can be nearly identical to regular savings accounts, said Ken Tumin, founder and editor of DepositAccounts, which, like MagnifyMoney, is owned by LendingTree. Both accounts have the same restriction on monthly withdrawals.

One of the key differences is that money market accounts sometimes offer limited check-writing capabilities or debit card transactions, Tumin said, though not all banks allow it. Money market accounts might also have slightly higher interest rates than regular savings accounts — especially if you go with an online-only money market account — but you might have to meet certain criteria.

Money market accounts are more likely than traditional savings accounts to have minimum balance requirements to open the account and monthly minimum balances if you want to avoid a banking fee, Tumin said.

But those differences and features are up to individual banks, Tumin said. So before you open a money market account, read the details carefully. If you run a business and need a place to park accessible savings, you can look into opening a business money market account.

Certificates of deposit (CDs)

Savings and money market accounts are ideal for emergency funds or short-term goals, but what if you’re more interested in growing your money and you don’t need to access it soon?

Consider a certificate of deposit, which keeps your money locked away for a set period — often anywhere from a few months to five years — in exchange for a higher interest rate than you’d find with a savings or money market account. The longer the term and the bigger your deposit, the better your interest rate will be.

If you have $100,000 or more to invest, you could opt for a jumbo CD, which sometimes offers a higher interest rate than a traditional CD.

A CD is ideal if you have a goal a few years off, such as a down payment on a house, Tumin said. “A CD can be better [than a savings or money market account] because you already have that lump sum and you want to maximize the interest rate on that,” Tumin said. “When it matures, you can access it and you can get a higher interest rate.”

While you can withdraw money from a CD early, most lenders charge a penalty. There are some no-penalty CD options. There are also financial institutions that offer bump-up or step-up CDs in which your interest rate rises over your term.

Tumin said others might use CDs as a conservative way to invest rather than put their money in stocks, bonds and mutual funds. While your returns might not be as high as on the stock market, they’re guaranteed — and safer.

One way to make the most of your returns is to set up a CD ladder, Tumin said. When you create a CD ladder, you stagger investments in multiple CDs that mature at different times, which lets you more readily access money. As they mature, you can roll them into more long-term CDs to keep your interest growing.

Health savings and flexible spending accounts

If you expect to have medical expenses, health savings accounts (HSAs) and flexible spending accounts (FSAs) give you tax-advantaged ways to set aside savings for them.

You can only open an HSA if you have a high-deductible insurance plan as defined annually by the IRS, which is currently a deductible of at least $1,350 for an individual or $2,700 for a family.

“Contributions to HSAs generally aren’t subject to federal income tax, and the earnings in the account grow tax-free and can be taken out tax-free for eligible medical expenses,” said Matt Gellene, head of the financial center at Merrill Edge and a national performance executive at Bank of America Merrill Lynch. This helps you save money on out-of-pocket medical costs.

There are annual limits on how much you can contribute. But unused balances carry over if you change jobs or stop working, Gellene said.

“You also have the ability to invest funds and earn interest if your balance exceeds $1,000,” he said. You might be able to open an HSA with your health insurance company, but they’re also offered by many financial institutions.

A similar account is an FSA, but you can only obtain one through an employer. The money doesn’t roll over annually, though some employers allow you to carry over up to $500 per year. Since your employer owns the account, you lose it when you leave, Gellene said. You also can’t invest the money elsewhere. But it’s an easy way to have pretax dollars automatically set aside from your paycheck for health care expenses.

It’s also important to note that you generally can’t contribute to these types of savings accounts in the same year, though there are exceptions.

College savings accounts (529 plans)

College is extremely expensive, so 529 plans offer a tax-advantaged way to set aside and grow funds for your loved one’s future education. The rules for each type of 529 plan vary by state. But when the money is used for qualified education expenses, such as tuition, room and board, and books, withdrawals can be made without paying any federal taxes.

“The 529 plans allow investment earnings to potentially grow while remaining sheltered from federal and — possibly — state income taxes,” Gellene said.

These come in two types: savings plans, which allow you to invest for a higher education, and prepaid tuition plans, which allow you to purchase credits or units.

Prepaid tuition plans let you lock in tomorrow’s tuition at today’s rates, Gellene said, while savings plans “let you choose from a menu of investments and offer more return potential, as well as risk.” Be aware that, like any investment, they can lose money.

There are also private 529 plans, which can be used for participating private colleges.

Retirement accounts

Just like there are tax-advantaged accounts for health care and college, there are similar types of savings accounts for retirement.

If you have a full-time job, you can likely get a 401(k) account through your employer. Your contributions come out of your paycheck and reduce your amount of taxable income. Some employers will incentivize these plans by matching contributions.

“If your employer offers a traditional 401(k) plan, consider taking full advantage of any matches they offer,” Gellene said. “This is essentially free money that may make a major difference in your overall savings.”

If you don’t have access to a workplace 401(k), or you’ve maxed yours out, you can open an individual retirement account (IRA). The two most common types are Traditional and Roth IRAs. With a Traditional IRA, you get a tax break when you make the contributions, and you pay taxes when you withdraw the money in retirement. With a Roth IRA, you put in post-tax dollars but get to withdraw them tax-free.

“A Roth IRA is best for those who are further from retirement because the longer your earnings can grow, the more potential income you can have that will never be taxed,” Gellene said. “If you expect your income to be lower in retirement, contributing to a Traditional IRA with pretax contributions may be better since you will be in a lower tax bracket when you take distributions in retirement.”

Be aware that if your income is very high, you might not be able to qualify for a Roth IRA, he said. But it’s possible to contribute to a Traditional IRA then convert the funds to a Roth IRA later.

You can also invest in an IRA CD, which is when you choose to invest some or all the money in your IRA into a CD rather than traditional stocks, bonds or mutual funds.

There are numerous types of savings accounts available, and the best one for you will depend on your financial goals, and how and when you plan to spend the money.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Emily Starbuck Gerson
Emily Starbuck Gerson |

Emily Starbuck Gerson is a writer at MagnifyMoney. You can email Emily here

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Banking

Review of Mvelopes Budgeting App

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

The Mvelopes app helps you make a budget and stick to it. The app mimics the envelope budgeting system — where you place actual cash in physical envelopes — on your mobile device. Placing cash in paper envelopes every month is a budget strategy that’s been around for a long time, and Mvelopes virtualizes this tried-and-true method. If you like the idea of budgeting via envelopes but find it a hassle to use actual physical envelopes and cold, hard cash, Mvelopes may be a budgeting solution for you.

What is the Mvelopes app?

With Mvelopes, you trade the physical cash and paper envelopes of the envelope budgeting system for a website and a mobile app. You synch up bank accounts with Mvelopes, which lets you create virtual envelopes and then assign different amounts to place in each envelope. Mvelopes offers a 30-day free trial, after which you’ll need to decide how many features you’d like to pay for.

Mvelopes has three levels of service: Basic for $6 a month, Plus for $19 a month, and Complete for $59 a month. Choosing to pay annually gives you a discount equal to two months of fees. At the Complete level, Mvelopes gives you a 60-day money-back guarantee, no questions asked.

Features of Mvelopes

The Mvelopes Basic account offers the following features:

  • Digital envelope budgeting
  • Automatic importing/syncing of transactions
  • Monitoring of account balances
  • Interactive reporting
  • Live chat support
  • Weekly webinar

After you open your Mvelopes account, you’ll see a dashboard with six broad budget categories (bills, everyday, giving, goals, periodic, system), each populated with budgeting envelopes. You can add or remove envelopes from these budget categories at any time.

Under each category, Mvelopes provides envelopes for items like auto maintenance, home maintenance, gifts, auto insurance, electricity, phone and so on. You’re free to change these envelopes at any time to match up with your own personal budget categories.

Add financial account to sync transactions

After opening your account, you’ll be asked to sync one or more financial accounts to Mvelopes, like a checking or savings account, or a credit card account. Mvelopes will automatically import your transactions from each account. Imported transactions are automatically assigned to your Mvelopes inbox. From there, you are responsible for categorizing your deposits and purchases into the correct envelope.

The Mvelopes dashboard and reporting features allow you to see at a glance all of the information regarding your funding and spending transactions, along with your budgets and the amounts remaining in each envelope.

Interactive reporting

You can generate three types of interactive reports that help you understand your spending and plan your budget: envelope reports, account reports or spending plan reports. Within these broad categories, you can track envelope transactions and balances, create summary reports and show details of accounts and envelopes.

Live chat support & weekly webinars

Live chat is available at all tier levels Monday to Friday from 9 AM MST to 7 PM MST, but not on Saturday or Sunday.
Mvelopes likes to stress the educational component of its services, and in addition to extensive educational information you can find online, Mvelopes hosts weekly webinars on various financial topics.

Mvelopes Plus features

At the Plus level, you get the features above plus:

  • Quarterly checkup from an Mvelopes Personal Finance Trainer
  • Debt reduction tools
  • Access to educational resources
  • 1-on-1 assistance with setting up your account
  • Priority support

The big advantage of the Plus tier is a quarterly check-in with a personal finance trainer, who helps guides you and provide feedback on your budgeting process. In addition, Mvelopes will custom-design a rapid debt reduction plan that is personally tailored to your financial needs. You can discuss your progress on this plan every three months with your personal finance trainer session.

Mvelopes also offers an interactive learning center to help Plus-tier customers understand the keys to financial success across a broad range of topics.

The Plus tier also entitles you to one-on-one startup support to help you establish your account and set up your envelope budgeting program. It also gives you priority when it comes to support issues.

Mvelopes Complete features

Complete is Mvelopes’ top tier of service, giving customers the following additional benefits:

  • Monthly sessions with a personal finance trainer
  • A customized Mvelopes budget plan
  • Financial education guided by a trainer
  • Accountability and motivation tools

Top-tier Mvelopes clients get monthly access to a personal finance trainer to help keep them motivated and on track toward their budgeting goals. Working in conjunction with their trainer, Complete-tier customers create a customized financial plan tailored to their personal situation.

In addition to the Plus-tier educational resources, Complete-tier customers can learn additional financial planning techniques and strategies, including financial goal tracking, via trainer-guided education.

Advantages of Mvelopes

  • Automatically imports all of your financial transactions
  • Multiple levels of service to meet varying customer needs
  • 60-day money-back guarantee at Complete, its top-tier level
  • Options for unlimited envelopes and personal financial coaching

Downsides of Mvelopes

  • Not completely automated: You still have to categorize your imported transactions
  • Interface is not entirely intuitive or easy-to-use
  • After the 30-day introductory trial, there is no free option available
  • No 24/7 live chat

Mvelopes vs. other budget apps

Mvelopes is uniquely focused on making the envelope-budgeting system easy to use in an online or mobile format. If you’re already familiar with this type of budgeting, the app may be a perfect fit for you. However, there are other options worth examining.

Mvelopes vs. Goodbudget

Goodbudget is one of the few competitor apps to Mvelopes that focuses on the same envelope budgeting system. The apps are very similar, with the main difference in their interfaces and pricing.

Unlike Mvelopes, Goodbudget offers a free option. However, users are only allowed to link a single account. Goodbudget’s paid account costs $6 per month — the same cost as Mvelopes’ Basic account — and offers broadly similar functionality at that level. However, Mvelopes’ premium service tiers give you quarterly or monthly access (for higher fees) to personal financial specialists, something Goodbudget doesn’t offer at any price level.

Mvelopes vs. EveryDollar

EveryDollar is a budgeting app without the envelopes. As the name implies, EveryDollar allows you to track every dollar that comes into or goes out of your linked financial accounts. Like Mvelopes, you’ll start by setting up your budget categories, such as groceries, restaurants, clothing and health care, and assigning your transactions to each segment. Although the categories are not specifically called “envelopes,” they serve the same purpose as with Mvelopes.

EveryDollar has a free version and a paid version that costs $129.99 per year. The free version includes a personal budget planner and an expense tracker. Access to service and savings experts, such as insurance, real estate and tax professionals, comes with the paid version.

Is Mvelopes right for you?

If you’re already familiar with the envelope system of budgeting, Mvelopes might be your go-to budgeting app. However, even at the Basic level, you’ll be paying $6 per month just to digitize your envelopes. Meanwhile, the top tier costs a very steep $59 per month to add monthly financial coaching. The Mvelopes requires you to regularly allocate your funds to individual envelopes, which could be helpful for some users, but cumbersome for others. Whether you stick with Mvelopes depends on your comfort with frequently interacting with your envelopes.

Fees mentioned in the article are accurate as of the date of publishing.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

John Csiszar
John Csiszar |

John Csiszar is a writer at MagnifyMoney. You can email John here

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Banking

How to Pay for Uber and Lyft Rides with Commuter Benefits

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

You may have more options than you think when it comes to getting your employer to foot the bill for your commute. Some commuter benefits packages include ride-share options, and both Lyft and Uber have hopped on board the trend.

Lyft and Uber commuter benefits can be used when riders select a shared Lyft ride or uberPOOL, the apps’ carpooling options. If you’re curious about this benefit and whether or not it’s worth linking your Uber or Lyft account to your commuter benefit account, we’ve got you covered.

What are commuter benefits?

Commuter benefits are an employer-provided benefits program that lets you set aside pre-tax dollars in an account to be used for your commute costs. Employees can use these benefits to pay for public transportation — trains, subways, buses, even parking passes — used on their daily commute with pre-tax dollars. The amount of money you set aside to pay for your commute doesn’t count as income, so you’re not taxed on it.

Which benefits programs are included for Uber and Lyft?

Each ride-hailing service has partnered with select benefits programs; there is significant overlap, though Lyft has a slightly more robust list of partners.

For example, if your company’s benefits package is with Zenefits, Wageworks, Igoe or Pension Dynamics, you can use your commuter benefits with Lyft as well as with Uber. On the other hand, if you use the Benny Prepaid Benefits Card, the Discovery Benefits Visa Prepaid Debit Card or the EBPA Benefits Debit MasterCard, you can only use Lyft.

You can see a full list of the supported commuter benefits programs for Lyft here and for Uber here.

How do I sign up for commuter benefits?

Workers have to sign up for commuter benefits in order to receive them. When you sign up, you will be asked to select how much money you want to set aside from your paycheck each month to cover your transportation costs.

Once you’re enrolled, you may receive a benefits card (it can be used like a regular debit or credit card) to make transportation purchases. Otherwise, you may be able to cover transportation expenses using your regular credit or debit card and then submit a claim to be reimbursed through your benefit provider.

Reach out to your employer’s human resources department to find out how to take advantage of your commuter benefits program.

How much can I really save?

Depending on your current tax bracket, you could save as much as 37% on your commute by using commuter benefits. For example, if you’re in the 35% tax bracket and contribute $200 each month to your commuter benefits account, you’re getting an extra $70 to spend on your commute each month. That’s an extra $840 per year.

But here’s the catch: Commuter benefits contributions are capped at $270 per month. So if you are already relying on your benefits to finance your monthly subway pass or parking garage expenses, you may not have much left over for Uber or Lyft commuter benefits.

What are Lyft’s shared rides and uberPOOL?

To use commuter benefits to pay for Lyft or Uber rides, you have to select the apps’ carpooling options — either Lyft’s shared rides or uberPOOL.

Carpool vehicles seat six or more passengers, whether you’re using Lyft or Uber. Both Uber and Lyft use algorithms to place riders going toward the same area in the car together. Because you’re carpooling, however, you may or may not have a longer commute, depending on traffic in your city and how many other riders get picked up or dropped off during your trip.

Where are these benefits available?

Whether Lyft or Uber commuter benefits are available in your location depends on which rideshare option you want to use.

If you prefer Lyft, you’re in luck: As long as the company offers shared rides in your area, you can use your commuter benefits to fund your rides, assuming, of course, your company uses a partner benefits program. Here is a full list of cities where Lyft offers shared rides.

Uber users, on the other hand, can use the commuter benefits everywhere that uberPOOL is available, with the exception of Nashville, Tenn. and Portland, Ore.

How to use commuter benefits on Lyft

If you’re interested in using commuter benefits on Lyft, here’s how to set it up:

  1. First, you need to add your commuter benefits card to your profile. When you open the Lyft app, tap “Payment” in the left-hand side menu to see your payment options.
  2. Select “Add card,” enter your commuter benefits card information and press save.
  3. Next, set the card as your default payment method. There are two ways to do this:
    • Select the card as your default payment method for your personal profile under the “payment defaults” section in the “Payment” menu.
    • When you open the app, set your location and destination. You’ll then see the last four digits of the card that’s being used to pay for the trip. Tap the numbers to change your payment method to your commuter benefits card. You should see a rectangular icon with a diamond in its center when using your benefits card.
  4. To use your commuter benefits on a ride, select “Shared.” You can only use your benefits to pay for carpools under the “Shared” ride option, located under the “Economy” tab.

How to use commuter benefits on Uber

Prefer to use Uber? Here’s how you can set up Uber commuter benefits:

  1. Add your commuter benefits card to your profile by going to the left-hand menu and adding your commuter benefits card under “Payment” (it may also be listed as “Wallet.”) You can also add the card after setting your location and destination under uberPOOL, shown below.
  2. Tap on your card information to set or add your commuter card as a payment option.
  3. Your benefits can only be used to pay for carpools under uberPOOL. Select the pooling option to be matched with a car with six or more seats, and you’ll be good to go.

Pros of using Uber and Lyft commuter benefits

  • Use pre-tax dollars to save: The most obvious perk of using your commuter benefit is that you’re using pre-tax dollars, so your dollar can go up to 37% further. If you’re already paying out of pocket for your commute, this could be a huge benefit, freeing you up to use that cash on something else.
  • Cut back on driving: According to the latest available five-year estimates from the U.S. Census Bureau, the average commute takes about 27 minutes — though if you live outside of a larger, more congested city, it could be significantly longer. If it’s more affordable for you to use a ride-sharing app, you can use that time to read, catch up on work or take a nap while you ride, instead of letting the stress of navigating from point A to point B get the best of you.
  • Reduce your carbon footprint: Since these benefits are restricted to carpooling with at least six or more passengers, taking advantage of it means contributing to a smaller carbon footprint, and that’s especially true if you usually drive to work solo. Using a ride-sharing app takes the hassle out of organizing a carpool.

Cons of using Uber and Lyft commuter benefits

  • Only shared rides are eligible: You may want to put your pre-tax dollars elsewhere if you’re not into making new friends each morning. You’ll be placed in a vehicle that seats six or more people when you use your benefits card, and other riders may have various personality types that may not mesh so well with yours, if, for example, you tend to be in zombie-mode before your coffee kicks in and prefer to sit in silence.
  • Contributions are limited: Your contribution is limited to $270 a month, which may or may not be a month’s worth of commuting, depending on how much your commute costs. For example, an analysis by LendingTree, the parent company of MagnifyMoney, found the average monthly cost of commuting with Uber’s non-pool service UberX in New York City is more than $700. Still, $270 pre-tax will help cut down on your monthly spending for the trip to work.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at [email protected]