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How to shop for savings accounts
Are you in the market for a savings account? Read on to learn how SuperMoney's tools can help you compare and filter savings accounts.
A savings account is a great place to keep your emergency fund and earn interest. Savings accounts are easy to open and often have lower fees and minimum balance requirements than checking accounts. The Consumer Finance Protection Bureau recommends having at least $400 in a savings account as an emergency fund. However, it's better if you can have at least three months of living expenses in your fund. Just putting aside $5 to $10 a week can go a long way towards achieving financial security.
Not all savings accounts are created equal. So how can you find a savings account that's right for you? SuperMoney's tools can help you compare and filter savings accounts based on the rates, terms, and features that matter the most to you.
Savings accounts Vs. Certificates of Deposit
A CD (certificate of deposit) is a type of savings account that allows you to earn a higher interest rate in exchange for committing to keep your money in the account for a set term, usually a few months to a few years. CD rates are typically higher than savings account rates, but you cannot withdraw your funds from a CD without paying a penalty until the term is up. If you don't mind locking your savings for a set period, you can earn extra interest by investing in CDs.
Compare the rates of the CD accounts below with the savings accounts above to see what makes more sense to you.
How do you compare savings accounts?
Every bank's savings accounts are different. In order to compare savings accounts and find the right one for your situation, you must first identify which features matter most to you.
For example, if you are looking to minimize costs, you may prefer a bare-bones account with low or no fees. Or maybe you'd to maximize your returns and don't mind paying a little extra for it! Wherever your priorities lie, the right savings account is out there. You just need to know what to look for.
What should you consider when comparing savings accounts? Here are the main factors:
- Interest rate yields
- How often do the interest rates change
- Minimum deposit requirements (for the account, to earn the top yield, and to waive the monthly fee)
- Restrictions on withdrawals or transfers
- Account features
- Procedures for closing an account
- Quality of customer service
- Availability of branches
- Fees (overdraft, deposited item returned fee, incoming wire transfer fee)
The ideal account would have an interest rate on the higher end that doesn't fluctuate too often, a low minimum deposit requirement, minimal fees, great customer service, and minimal restrictions/penalties on withdrawals or transfers.
It would also offer access online and in-person. You may have to sacrifice some of these features for others in your search, such as a higher interest rate for online-only banking, so prioritize what is most important to you and then look for the institution that can provide the best offer.
Let's dig deeper into the factors that differentiate one saving account from the next.
Minimum deposit requirement
Most savings accounts require a certain minimum deposit to open the account. This minimum varies widely for different accounts. Accounts with a high APY (annual percentage yield) often require a large minimum balance to open an account or to start earning interest.
Don't worry if you don't have much money to save. There are accounts with low minimum balances. Some don't even have a minimum amount. Keep in mind that a lower minimum deposit may mean a lower interest rate or fewer features.
Minimum balance requirement
Most banks require you to maintain a certain balance in your savings account. If you dip below this minimum, you'll incur fees.
There are two different ways that banks assess your balance:
- The average daily balance allows for fluctuations in your account. As long as your average balance for the cycle is above the bank's minimum, then there is no fee.
- A minimum daily balance requires that your balance never drops below a set minimum. As long as your balance never drops below the minimum, there is no fee.
When selecting a savings account, make sure that your balance will be larger than its stated minimum. And consider how you manage your balance. Will your balance fluctuate throughout the month (but stay, on average, above the minimum)? Or will it remain steady?
Fees
There are a number of fees that you may have to pay in order to maintain your savings account.
For example, if you fail to meet your account's minimum balance requirements, you'll have to pay a fee. However, you can sidestep these fees by choosing a savings account with a moderate (or nonexistent) minimum balance requirement.
Likewise, many banks charge account maintenance fees. These charges occur on a monthly or yearly basis, and can be avoided by maintaining a high enough balance.
Other fees you may encounter include overdraft fees, withdrawal fees, balance transfer fees, and more. When you compare savings accounts, consider how you intend to use yours. How much money are you looking to store? How often will you make withdrawals? Will you need to wire money overseas? Then, choose a savings account that won't penalize your intended activities.
Interest rate (APY)
In a savings account, your balance will earn interest over time based on an annual interest rate. As your interest compounds, your balance's growth will accelerate. An account's expected annual rate of return (including compounding interest) is known as its Annual Percentage Yield (APY).
When you compare savings accounts, look to each account's APY to find out what kind of returns you can expect. Generally speaking, a higher interest rate is always better.
APY minimum balance
Some accounts offer a higher APY if you deposit more money. However, to receive this higher rate, you must keep your balance above that figure. In some situations, the bank will offer multiple tiers of interest rates for different ranges of balances.
When reviewing account options, you should find out what APY is offered for lower balances, as well as for higher ones. You never know when an emergency may take a dent out of your savings. In situations like these, you should know that your remaining balance will still earn a decent interest rate.
Accessibility
In this day and age, online access to your savings account is crucial. A streamlined online platform is the easiest way to manage and transfer money on a day-to-day basis. If your bank offers a mobile app for remote access to your account, that's even better.
Most banks do not charge for online access to your accounts, but you should still confirm whether there is a fee for online access.
What types of savings accounts are there?
There are three primary types of savings accounts to choose from, each with its own unique advantages.
- A regular savings account earns interest, is highly liquid, and usually has low fees.
- A money market account generally offers a higher interest rate than a regular savings account. However, the minimum balance required to open an account and to avoid fees is also higher. And some accounts limit the number of checks you can write each month.
- A certificate of deposit (CD) offers a fixed rate of interest for a specified timeframe. That means that even if market rates fall, a CD's interest rate won't change. However, CDs provide less liquidity -- you cannot access your funds until after the specified timeframe ends. If you do withdraw money early, you may forfeit some of the interest you earned.
- Automatic savings plans make it easy to save by making automatic monthly transfers from your checking to your savings. You can choose the dollar amount you want to transfer and the events that trigger the transfer (e.g. your payday). Some banks will offer lower banking fees when you sign up for an automatic savings plan.
- Online-only savings accounts accept deposits remotely and often have no minimum balance requirements. They typically have few to no monthly fees, and offer higher interest yields on deposits.
- Student savings accounts are designed for students who don't make much money yet. They typically don't charge fees or minimum balance requirements. Once the student graduates, the student will need to convert the account into a regular savings account.
- Goal-Oriented savings accounts are -- no surprises here -- designed to help you achieve specific goals like buying a car or home. They don't necessarily help you earn more on your savings, but separate funds for the goal from other money and track progress toward the goal.
What fees should I expect?
Here are the common fees associated with savings accounts.
When shopping for a savings account, be sure to find out which fees each institution charges and the amount of each fee.
Frequently asked questions about savings accounts
What is a savings account?
A savings account is a federally-insured, interest-bearing deposit account held by a bank or other financial institution. It is a safe place to store cash and earn modest returns.
Why open a savings account?
A savings account enables you to separate the money you want to save from the money you want to spend. The saved money becomes less accessible than the money in your checking account, as Federal law limits you to six transfers or withdrawals from your savings each month. If you exceed this limit, there is typically a fee.
In addition to helping you save, your savings account also earns you a small return each year on the money kept in the account. However, if you consistently surpass transfer limits, the bank may convert your account into a non-interest earning checking account.
What do you need to open a savings account?
When you are ready to open a savings account, you will need to provide the following:
- A valid, government-issued ID
- Your current bank account information (account and routing numbers)
- Your basic information (name, SSN, address, email, phone number, etc.)
- The minimum deposit amount (if applicable)
These are the basics most banks will require, but it can vary depending on the financial institution.
Which is the best bank for savings accounts?
The best bank for your next savings account will depend on your personal financial situation and your goals. An account may offer a high APY and low fees, but it's of little help if you can't meet the minimum balance required to qualify for them.
Which bank offers the best interest rate for savings?
Again, the answer to this question will depend on how much you have to deposit in a savings Account. Enter the amount you plant to save in the filter below and see which financial institution offers the best rates and lowest fees.
How much will I earn in a savings account?
The amount you can earn in depends on the interest rate you get and the amount of money you deposit. According to CNN Money, the average savings account has a 0.06% annual percentage yield, while many big banks pay 0.01%. That means if you have $10,000 in a savings account, the average you'll earn back over a year's time is $60.
However, according to Consumer Reports, online banks pay an average of 0.93% interest and some pay up to 1.6%. If you land an interest rate of 1%, you will earn $100 on $10,000 after a year.
Online banks have greatly increased their interest rates over the past few years as they compete to win customers. Traditional banks still hope they can win over customers through the access to branches and ATMs.
What banks have the best interest rates for savings accounts?
Currently, online banks offer interest rates that are substantially higher than traditional banks due to their low overhead and the competition among them. The annual percentage yields top out around 1.65%, with online banks averaging around 0.93% and traditional banks averaging around 0.06%.
Can you lose money in a high-yield savings account?
No, as long as the financial institution you are using is FDIC insured. Granted, the rates of a high yield savings accounts are not high enough to secure your retirement. However, they are the best place to put cash you might need in a pinch or for a goal in the next couple of years. We say this because the rates are competitive, you can access your money whenever you want, and they're FDIC insured up to $250,000.
What is the difference between a savings account and a checking account?
A checking account is more fluid, designed for everyday transactions. On the other hand, the money in a savings account should stay put and earn interest.
Should I open an online-only savings account?
Given that they offer the most competitive interest rates, an online-only savings account may seem like the obvious choice. However, they do come with a few inconveniences. Here's a look at the pros and cons of both online and traditional savings accounts.
How to find the best savings account for you
Finding the best savings account for you will require identifying what you want in an account. With the above knowledge in mind, think about which factors are most valuable to you.
Is it convenience, a personal relationship with your banker, the highest return on your investment, or something else? Once you know, use the tools on this page to narrow down your options to a shortlist. Then research each option and check the consumer reviews for them.
