Choosing a savings account might seem straightforward, but your choice can have a major impact on how quickly your money grows. Interest rates, fees, and special features vary widely across banks, so it’s worth taking some time to evaluate your options before opening an account.
If you’re searching for a new savings account, maximizing your interest rate is likely your main goal, but that isn’t all that matters when choosing an account. Here are the most important factors to consider.
The biggest appeal of a savings account is the opportunity to earn interest on your balance. The rate is usually listed as an annual percentage yield (APY), which represents how much interest you’ll earn in one year, including the effect of compounding interest.
Large national banks typically offer traditional savings accounts with low APYs (think: 0.01%). However, there are dozens of high-yield savings accounts that offer between 3% and 4% APY, or even higher in some cases.
The difference in your earnings can be significant. For example, if you deposit $1,000 in a traditional savings account with 0.39% APY (the national average rate for savings accounts), you’ll earn just $3.90 after one year. But if you put the same $1,000 into an HYSA with 3.5% APY, you’ll end the year with $35. Of course, the bigger your balance, the greater your interest earnings.
2. Fees and minimum balance requirements
Fees can eat into your earnings, so it’s important to understand the costs associated with any account you’re considering. Common fees include monthly maintenance fees, excessive withdrawal fees, and minimum balance penalties.
Look for accounts with no monthly fees or ones that waive fees if you meet certain conditions, such as maintaining a minimum balance or setting up direct deposit. Also check whether the account requires a minimum opening deposit, especially if you’re just starting to build your savings.
3. Online vs. brick and mortar
Online banks tend to offer the best APYs and lowest fees on savings accounts. That’s a clear positive, but you should keep in mind that when banking at an online institution, you won’t be able to visit a branch in person.
For some people, that may not be a problem. According to the American Bankers Association, 55% of bank customers prefer using apps on phones or other mobile devices for managing their bank accounts, while 22% prefer online banking via a desktop computer. Meanwhile, just 8% prefer banking in person at a branch.
Read more: How to deposit cash at an online bank
While savings accounts are designed for holding money long-term rather than frequent spending, you still want reasonable access to your funds. Many banks allow transfers between linked accounts, though depending on the account(s), it could take several business days for the transfer to complete.
Some accounts also limit how often you can withdraw funds each month. While federal rules that once capped withdrawals have been suspended, many banks still impose their own limits. And if you exceed the cap, you could be subject to a fee. So, if you think you’ll need to make frequent withdrawals, choose an account that offers flexibility without excessive fees.
There may come a time when you need help with your account. Be sure the bank you’re considering offers the type of customer service support you want, such as 24/7 service and the ability to speak to a live person being on the phone.
Security should be a top priority when choosing where to keep your money. Make sure the account is held at a bank insured by the Federal Deposit Insurance Corporation (FDIC) or a credit union insured by the National Credit Union Administration (NCUA). This protects your deposits up to $250,000 per depositor, per institution, in case the bank fails.
In addition to insurance, consider the bank’s broader security features, such as encryption, multi-factor authentication, and fraud monitoring.
Read more: 6 important security features to look for in a bank
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