Whether you’re saving for a home, car, are your child’s college, knowing how to choose a savings account is so imperative to reaching your financial goals.
You don’t just want to put your money anywhere. You want to make sure that your hard-earned money is being kept somewhere safe and that it’s working for you.
Before opening a savings account, it is important to do your research. You want to make sure that the account matches your financial needs so that you can reach your savings goals.
Here’s how you can choose the best savings account for your money.
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How to Choose A Savings Account
1. Determine your savings goals
Before you start shopping around for accounts, you’ll need to have clarity on what your savings goals are.
Do you have short-term goals or long-term goals? What are you saving for?
This answer will help you determine which type of savings account to take advantage of. For example, if you’re saving for college, you would consider a 529 Plan or ESA. Contrarily, if you’re saving for a trip, you’d leverage a simple online savings account.
2. Determine your comfort level
Now that online and digital banks are an option, you’ll need to figure out what your comfort level is.
Are you ok with online-only banks? Are you ok with digital banking?
Knowing the answer to these questions will help you narrow down your options to a bank that’ll work best for you.
3. Shop around
Don’t go with the first bank that you see on the corner or in your Google search. Take time to shop around and compare banks.
What to consider when choosing a savings account?
You should choose a savings account based on your financial goals. Ultimately though, there are 3 major things that you need to consider when choosing an account.
1. Ease of opening and accessing account
Everything is about ease and convenience these days. Opening a bank account is no different.
Would it surprise you to know that I haven’t been inside of an actual bank in over a year? And the only reason I went in a year ago was that I needed a cashier’s check to make the down payment on our home. Not surprisingly, it’d been over a year before then for my last visit to join accounts with my husband.
With everything at the touch of our fingertips, I find no need to go into a brick-and-mortar bank for my transactions. That’s why I prefer a savings account that I can open and access without the hassle of having to find time to go to a branch.
When considering which savings account to use, I recommend considering online savings accounts for their sheer ease and convenience. Online banking gives you the option of being able to access your accounts anywhere and typically comes with 24/7 support via phone or chat.
Online banks also have the advantage of offering higher interest rates, because they don’t carry the overhead and expenses of maintaining a brick and mortar branch.
If you’re looking for a way to save and earning on your money, consider online banking for your savings account.
2. Minimum balance required & fees
I’m all about saving the coins, especially when it comes to fees. So, when considering a savings account, the minimum balance amount and associated fees are of utmost importance.
Some banks access fees for your account being below a specific balance. This is important if you are using your savings account to stash for a trip or to make big purchases, where funds will ultimately be coming out.
If you know that your account may fall under that minimum balance, it’s wise to avoid it and find a bank that doesn’t access fees. There are a few banks that offer minimal to no balance requirements.
3. Annual Percentage Yield (APY)
Admittedly, APY may be the single most deciding factor when I’m accessing a potential savings account. Why? Because it’s free money!
An account’s APY is the amount of interest that you will receive each year on the money held in your account. For example, if your account’s APY is 2.2%, that means you’ll receive $2.20 for every $100 in your account that year.
So imagine how much interest you can gain from having 6-12 months of an emergency fund in the right account!
Before you get too excited, know that the government will get its portion in taxes from the interest earned. If your account earns interest, you’ll have to submit a 1099-INT form to the IRS reporting your income from interest.
4 Common Types of Savings Accounts
There’s practically a savings account that can help with any of your financial needs. Here are 4 that you can consider opening to help you save.
1. TRADITIONAL OR REGULAR SAVINGS ACCOUNT
A traditional or regular savings account is designed for you to deposit money and not touch it for a period of time. This is where you put your money away so that it can grow and, ultimately, help you build wealth.
There are federal regulations on the usage of savings accounts so that they are used for their intended purpose. An example of the rules in place is the maximum number of transfers that you can make out of your savings account.
2. HIGH-YIELD SAVINGS ACCOUNT
A high-yield savings account is simply a traditional savings account that offers a much higher annual percentage yield (APY). Online banks typically offer higher interest rates, because they don’t carry the overhead and expenses of maintaining a brick and mortar branch.
So if you’re trying to figure out exactly where to save your money, I would definitely recommend that you check out online savings accounts, which will give you a higher annual percentage yield, meaning that you will earn more interest on your money that is sitting in the account.
3. MONEY MARKET ACCOUNTS
Money market accounts or MMAs are very similar to high yield savings accounts. However, they tend to earn more interest and have some features of a traditional checking account– such as checks and an ATM card. This makes funds more readily available, although you may incur some transaction limits.
Contrary to savings accounts, an MMA may require a higher minimum balance.
3. CERTIFICATE OF DEPOSIT ACCOUNT
Certificate of Deposit (CD) is an investment product offered through banks and credit unions. Essentially, you agree to deposit X amount of dollars into an account and not touch it for an extended period of time. In return, they’ll pay you interest for the money at a rate higher than a savings account or MMA.
If you choose to withdraw funds before then, you’ll be hit with penalties. So think before you act!
CDs will require a minimum deposit, so check with your bank or credit union to explore options. There are also online options as well.
What banks have the best savings accounts?
When considering which savings account to use, I recommend considering online savings accounts for their sheer ease and convenience. Online banking gives you the option of being able to access your accounts anywhere and typically comes with 24/7 support via phone or chat.
Online banks also have the advantage of offering higher interest rates, because they don’t carry the overhead and expenses of maintaining a brick and mortar branch.
If you’re looking for a way to save and earn your money, consider online banking for your savings account.
Does your money grow in a savings account?
If you leverage a high-yield savings account, then your money will grow.
But don’t think that you’ll get rich from just saving. At most, you may see an annual percentage yield of about 2%. This means that you’ll earn 2% of your balance in savings.
Although 2% is much higher than a savings account at a brick-and-mortar bank, it’s still not enough to beat depreciation over time.
As Certified Financial Education Instructor (CFEI), she has been teaching personal finances to women & youth for over a decade.
Fo is an established writer and expert contributor on the topics of personal finance, budgeting, debt payoff, money mindset, saving, entrepreneurship, investing, motherhood, personal development, and more.