SSD or HDD for time machine

Your M1 Mac mini comes with two Thunderbolt 3 that can support:

• Thunderbolt 3 (up to 40 Gb/s)
• USB 4 (up to 40Gb/s)
• USB 3.1 Gen 2 (up to 10 Gb/s)

For a single external drive attached to either of these two ports, you would realize the greatest data throughput if the drive supports either Thunderbolt 3 or USB 4. Most likely, unless you tell me otherwise, it should support USB 3.1 Gen 2. Regardless, this is more than adequate for the purposes of running backups to it.

Unless you have a particular need to use Parallels Tools (FWIW, I have been using Parallels for years, but personaly have not found a real need for this tools myself), you can delete this folder. Again, if you format the drive, it will erase everything on it for you.

No, using a SSD for Time Machine will NOT offer any demonstrable increase in the speed of the backups.

What is this 5TB HDD make & model? How is it connected to your mini? USB-A, USB-C, Thunderbolt, etc? Is it dedicated entirely for Time Machine or do you have it partitioned for multiple uses?