SuperMoney's Complete Guide to Savings Accounts

Find out how to get the best possible rates and terms.

According to a 2017 survey, 57% of Americans have less than $1,000 in their savings accounts. The lack of a financial cushion can cause stress, making it difficult to manage unexpected expenses such as a car repair or medical expense.

If you want to grow your savings, you’ll need to analyze your financial situation, set goals, select a savings account, and implement your plan. When it comes to finding the right financial institution, there are many factors to consider. Here’s an in-depth look at savings accounts and how to find the best one to help you achieve your goals.

What is a savings account for?

A savings account is a federally-insured, interest-bearing deposit account held at a bank or other financial institution. It is a safe place to store cash and earn a modest return.

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.

If you continue to exceed the limit, the bank may convert your account into a non-interest earning checking account. Aside from helping you save, you also earn a small return each year on the money kept in the account.

How is a checking account different from a savings account?

A checking account is more fluid, designed for everyday transactions, while the money in a savings account should stay put and earn interest.

What are the different types of savings accounts?

Regular savings accounts

Regular savings accounts are offered by most all banks and the easiest to set up. They often have a minimum balance requirement, allow for transfers from a checking account, and have low interest rates. Further, Federal law limits withdrawals and transfers to six per month (not including ATM withdrawals and transfers).

Money Market accounts

Money Market accounts are part of the financial market and have very short maturities. They are a secure place to invest and are insured by the FDIC. These accounts typically have a higher minimum balance requirement and significantly higher interest returns than a regular savings account.

Certificates of Deposit (CDs)

CDs are another popular type of savings account. They are savings certificates with FDIC insurance which pay interest throughout the length of the investment. Maturity dates range from a few months to five years. The longer the term, the more interest you can yield. Note, there are restrictions on when you can withdraw money and charges if you withdraw before the maturity date.

Automatic savings plans

Automatic savings accounts make it easier to save by automatically transferring an amount from your checking to your savings. You can often choose the dollar amount you want to transfer and the events that trigger the transfer. Some banks will offer lower banking fees when you sign up for an automatic savings plan.

Online savings accounts

Online savings accounts were originally offered by online-only banks, but now many traditional banks also offer them. These accounts can be opened online, accept deposits remotely, often have no minimum balance requirements, have little to no monthly fees, and offer higher interest yields on deposits.

You will need to link a checking account to the savings account to make your initial deposit and can usually make deposits from other sources afterward. An online savings account will be a good fit for you if you are tech-savvy and comfortable handling your savings account without in-person service.

Student savings accounts

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 account will need to be converted into a regular savings account.

Goal-Oriented savings accounts

While you can set goals with any type of savings account, some banks offer accounts 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. These mainly offer a psychological benefit.

How much will I earn in a savings account?

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 are paying 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.

How to compare savings accounts

What should you consider when comparing savings accounts? Here are the main factors:

  • Interest rate yields
  • How often 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.

Review and compare savings accounts here. 

How much will I earn in a savings account?

The amount you can earn in a savings account depends on the interest rate you get and the amount of money you deposit. On average, you’ll earn somewhere between .06% and 1.6% per year.

Can you have two savings accounts at the same bank?

For the most part, banks do not set limits on the number of savings accounts you can hold. The few that do have limits around 25 accounts. So, if you want to open multiple accounts, it likely won’t be a problem.

What banks have the best interest rates for savings accounts?

Online banks currently offer interest rates that are substantially higher than traditional banks due to their low overhead and the competition amongst them. The annual percentage yields top out around 1.65%, with online banks averaging around 0.93% and traditional banks averaging around 0.06%.

Savings account fees

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.

Is it better to open an online savings account?

For some, an online savings account is a no-brainer, but for others, it will be a more complex decision. Here’s a look at the pros and cons of both online and traditional savings accounts.

WEIGH THE RISKS & BENEFITS

Here is a list of the benefits and the drawbacks of online savings accounts.

Pros
  • Higher yield
  • FDIC-insured up to $250,000
  • Convenient mobile banking
  • Cutting-edge technology
  • 24/7 access online
  • Flexibility in transferring funds
  • Lower minimum balance requirements
  • Lower fees
  • Flexible customer service hours
Cons
  • Difficult to deposit cash
  • No in-person help
  • Online transfers can take longer than in-person withdrawals
  • No personal relationship with a banker
  • Limited adjacent offerings (other loans, credit cards, etc.)
  • Must be comfortable with technology and have internet access

WEIGH THE RISKS & BENEFITS

Here is a list of the benefits and the drawbacks of traditional savings accounts.

Pros
  • FDIC insured up to $250,000
  • Face-to-face service
  • Work with your personal banker
  • Make cash deposits easily at a branch
  • Withdraw cash instantly
Cons
  • Lower yield
  • Higher minimum balance requirements
  • Higher fees
  • Limited office hours

Which is best?

A low-interest traditional savings account will be best for you if you prefer a face-to-face personalized banking experience and you want services beyond a savings account.

On the other hand, if you are comfortable with technology and don’t require in-person interactions for your banking needs, an online account can offer you higher yields and more convenience.

You can also find a cross of the two if you’d like some of the benefits of both.

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, you can narrow down your options to a shortlist and then research them in depth to find the best fit.

Ready to start your research? Click here to compare savings account providers side-by-side. 

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, although it can vary from one to the next.