Savings accounts are a type of bank account designed for money that you don't need access to all the time. These accounts pay a higher interest rate than you'd receive on a regular checking account. In exchange, there are usually limits to the number of times you can take money out of your savings account.
A good strategy is to keep the money you need for immediate use in your checking account and your extra funds in a savings account for the higher interest rate. But the amount of interest you earn and the fees you pay can be very different from one bank to another. Some banks also offer several different types of savings accounts, each with their own rates and benefits.
In This Savings Account Guide:
What Types Of Savings Accounts Are There?
Traditional banks offer a range of savings accounts. The main differences between these accounts are their interest rates, their fees, and their restrictions on how you can access your money. For example, an account that pays a higher interest rate would likely have more limits on how often you can make withdrawals.
There are also savings accounts run by online banks. These banks have low expenses because they don't run brick-and-mortar branches. As a result, they are often able to pay a higher interest rate than regular banks. These banks don't usually operate ATMs. The way this system works is that you connect your online savings account to your regular checking account and transfer money to your checking account whenever you want to take money out. If you like to do your banking online, don't visit banks in person anyway, and rarely draw cash out of your savings, this type of savings account may appeal to you.
What Fees Can I Expect To Pay?
Some savings accounts charge a service fee for being open. You need to pay this fee every month to keep the account active and this can erase any gain you get from the higher interest rate. There are ways for you to avoid the service fee though, such as if you make a minimum number of deposits into your savings account each month.
Savings accounts also usually require that you keep a minimum amount of money in your account each month. If your balance drops below this limit, you will be charged a fee. If you set up your savings account with a regular bank and they give you an ATM card, you need to use in-network ATMs to make withdrawals. If you use another bank's ATM, you'll owe a fee on the withdrawal.
If you overdraw your account, for example when a recurring payment is made when there isn't enough money in your account to cover it, you may be charged an insufficient funds fee. If the bank does not accept the transaction because there is too little money in your account, you may be charged a returned item fee.
So a savings account is not the account to use if you frequently overspend using a debit card. It also isn't the best type of account to schedule a lot of recurring payments from.
Finally, savings accounts set a limit to the number of times you can take money out per month. If you make more withdrawals than the monthly limit, you'll pay a fee for each of these additional withdrawals.
How Do I Pick The Savings Account That Suits My Style?
Your savings account needs to balance convenience with a good interest rate. As you compare different banks, rank them by who pays the higher interest rates. Since this will be the return on your savings, a higher interest rate is better.
You should also consider each account's fees, minimum balance requirements, and limits on withdrawals. Think about how you'll use your account. A higher interest rate won't do you any good if you keep running into extra fees.
Decide whether you're comfortable working with an online bank. Chances are, you'd earn more on your savings working online. However, many people prefer the convenience of working with a live bank teller, especially if they have their savings account at the same bank as their checking account.
Finally, consider whether a savings account gives you the kind of dividends you are looking for. If you expect to earn serious amounts of interest, an investment account might be a more realistic way to do that.
With the right setup, a savings account can help you get more out of your money. By considering these points, you should be in good shape to find the right bank for your savings.
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