Best Savings Accounts for January 2021
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When it comes to saving, whether it's for emergencies or for a down payment on a house, you’ll want to park your money in an account that will accrue interest while allowing you to access funds when you need them. If you’re hoarding money in your checking account, you’re missing out on the earnings associated with a high-yield savings account. And if you invest all your extra cash, it won’t be readily available to you. Having a savings account with enough money to cover a few months of expenses is a smart move.
However, minimum deposit requirements and fees vary across savings accounts. Plus, some offer a higher annual percent yield (APY) than others. If you’re shopping for a new savings account, here are some of our favorite high-yield options:
What makes these some of the best savings accounts
There are a lot of things to consider when you’re choosing the best savings account. Among the most important is how much interest your money will earn. When you put money into a savings account, you want it to grow, which is why the first thing to look for is the APY.
APY stands for annual percentage yield. For savings accounts, this is the percentage of interest your money will earn over the course of a year. This kind of interest gets compounded periodically — meaning daily, monthly, annually, etc. Every time your interest is “compounded,” it just means the amount of interest you’ve earned is calculated and then added onto your total savings balance. Basically, you start earning interest on your interest. The higher the account’s APY and the more often interest is compounded, the more and faster your savings grow.
All interest-bearing savings accounts have an APY. However, high-yield savings accounts have much higher rates than traditional savings accounts. This makes them ideal for reaching long-term financial goals and earning the most return on your deposits. The table below shows you the difference in interest earned when comparing a traditional savings account and an example of what a high-yield savings account might earn. These accounts start with the same amount of money and both are compounded monthly.
|Traditional Savings Account
0.05% APY (as of Jan 13., 2021)
|High Yield Savings Account
|Interest earned after 1 year||$2.52||$25.00|
|Interest earned after 3 year||$7.56
|Interest earned after 10 year||$25.20||$255.69|
The 3 types of savings accounts
- Traditional savings accounts
- Money market accounts
- Certificate of deposit accounts
Although there are many ways to save, the three most common types of accounts are traditional savings accounts, money market accounts, and certificates of deposit. These accounts are typically federally insured and don’t expose you to any risk. But they have some key differences you should understand so you can choose the type of savings account that's a good fit for you.
Traditional savings accounts
Also known as deposit accounts, these accounts accrue interest and offer easy access to your money. They typically have lower minimum balances than other accounts, and are straightforward and easy to maintain. You have the option of opening a savings account at a bank or credit union or online.
Online savings accounts tend to have fewer fees and restrictions in general than savings accounts at banks or credit unions. A high-yield savings account is one type of traditional savings account that earns a much higher APY (annual percentage yield) than the average account. Because there’s no risk involved, it’s best to choose the account with the highest rate that also meets your withdrawal needs.
The Federal Reserve limits the number of transactions from your savings account each month to six, but that doesn’t include transactions at an ATM or with a bank teller. That restriction has also been lifted in the wake of the coronavirus crisis.
Money market accounts
Money market accounts tend to come with a higher APY than traditional savings accounts. Some of these accounts offer you the option of writing checks. However, they also typically require you to maintain a greater minimum balance than other types of savings accounts. As such, a money market account is often worth it for longer-term savings goals.
Certificates of deposit
Known as being one of the safest options for savings, certificates of deposit are savings accounts that you can only cash out after a fixed time period. While they are less liquid than other options, they also earn some of the highest interest rates. The biggest risk with these accounts is that inflation will outpace the APY and you’ll lose purchasing power.
How to pick the best savings account for you
There are plenty of options out there for savings accounts, and each comes with its own advantages and disadvantages. Here are some of the factors you should consider when choosing a savings account.
Some savings accounts are free, whereas others may charge fees, including:
- Overdraft fees
- Returned deposit fees
- ATM fees
- Inactivity fees
- Fees for going below the minimum balance
- Monthly maintenance fees or annual fees, which are sometimes waived if you maintain a certain balance
These fees can deplete your savings faster, so you should evaluate how you’ll use the account and what you’ll be getting in return. If you plan to keep a small amount in your account for a short period of time, the cost of monthly fees, annual fees, and minimum balance fees may outweigh the benefits of having that account.
Minimum deposit requirement
Many savings accounts require a minimum opening deposit. Some online savings accounts, however, have no minimum balances, which can make them appealing to people who are just getting started with saving. Other accounts require you to deposit thousands to open the account. PurePoint Financial, for example, requires a $10,000 initial deposit (as of Jan 13., 2021).
Banks have minimum deposit requirements because they need to ensure they’re able to cover the cost of maintaining your account. That’s why online savings accounts, which cost less to operate, tend to come with lower minimum balances.
Look for a minimum deposit that makes sense for your savings strategy. If you’re just starting to save, an account with no minimum deposit might be a good fit for you. On the other hand, if you already have a nest egg, minimum deposit might not matter to you, and you can focus on finding an account with the highest possible APY.
Minimum balance requirement
Like the minimum deposit, many savings accounts have a minimum account balance you need to maintain to avoid a service charge or fee. For example, the bank may require you have an average daily balance of $1,000 in your account. Although this means at least that much money will always be earning interest in your account, it also means this money isn’t accessible to you — unless you’re OK with paying a fee.
That might not be a problem for someone attempting to keep three months of expenses in a savings account and only withdrawing in the case of an emergency. But if you just have a small sum that you may need to regularly withdraw from, you should choose a savings account with no minimum balance. This will allow you to access the money you need without fees.
Some online savings accounts don’t require a minimum balance. For example, the Capital One 360 Performance Savings account has no minimums whatsoever (as of Jan. 13, 2021). But minimum balances for savings accounts at banks and credit unions can be quite high, especially those that accrue more interest than the average account.
The current national average APY on a savings account is just .05% (as of Jan 13., 2021), and some savings account rates are even lower than that. That means you’ll earn just $2.52 in interest on a $5,000 deposit after one year, assuming the interest is compounded monthly.
But some savings accounts earn much higher savings rates. Generally, the higher the APY, the better, assuming the account has the features you need and doesn’t come with high fees. In addition to a high interest rate, you should also pay attention to compound interest — you’ll earn more if interest is compounded monthly rather than quarterly.
Online savings accounts typically provide higher APYs than traditional banks and credit unions, but some banks with physical branches offer high-yield savings accounts you can open online. For example, the Ally Bank Online Savings Account earns up to 0.50% APY, and the Goldman Sachs Marcus savings account earns up to 0.50% as well (as of Jan. 13, 2021).
Online vs. in-person banking
Some savers prefer to visit a physical branch location, do business with an actual human, and have ATM accessibility. Others enjoy the ease of online banking and managing their personal finances online. When deciding whether it’s important to you to visit a physical branch, consider all the costs associated with the account and the APY. Because online banks may have lower fees and minimums and a high APY for savings accounts, you could pay a premium or lose out on potential interest if you opt for a brick-and-mortar bank.
Some savings accounts have additional features that can make them more convenient. Consider if any of the following would be helpful for you:
- Mobile banking and/or mobile app
- Mobile check deposit
- Automatic recurring deposits
- Direct deposit
- Debit card or ATM card
- ATM access
- Bank account bonuses
Because you’ll need a checking account to fund your savings account, you might want to check to see if your current bank or credit union offers any rewards for setting up a savings account.
The savings accounts listed here offer some of the most competitive rates in the current market. Although these savings accounts offer favorable rates and terms, we did not review or include all accounts in this category.
Savings account FAQs
Do you need both a savings account and a checking account?
There’s no requirement that you need to have both, but it’s wise to keep both a savings account and a checking account. These two different types of accounts serve different purposes and offer different perks. If you keep all your money in a checking account, you’ll be missing out on accruing interest. On the other hand, if you keep all your money in a savings account, you won’t be able to access it for your daily purchases. It’s also a good idea to keep your savings separate from your spending money for budgeting purposes.
Is it worth keeping money in a savings account?
Yes. Most financial experts recommend keeping enough money in a savings account to cover three to six months’ worth of expenses. This can serve as an emergency fund that protects you if you need money quickly. Plus, if you opt for a high-yield savings account, you’ll also earn decent interest on the money when you’re not using it.
How many withdrawals can you make from savings each month?
Regulation D restricts account holders from making more than six withdrawals from a savings account in any month. You could face penalties, such as fees or even account closure, for surpassing this limit. However, ATM transactions and withdrawals made with the help of a bank teller are excluded from the limits. So if you think you’ll need to make more than six withdrawals per month, choose an account with a physical branch or ATM access.
Can you pay bills with a savings account?
Generally, you shouldn’t use your savings account to pay bills. However, you will find some accounts that offer check-writing capabilities and allow you to pay bills directly from your savings.
Still, using your savings account to pay bills conflicts with your savings goals. It’s best to have a checking account that you use for bill pay, so you can leave the money in your savings account untouched.
What's the average interest rate for a savings account?
According to the FDIC, the average savings account interest rate is just .05% (as of Jan. 13, 2021). However, some online savings accounts earn higher interest rates than others. For example, the Vio Bank Online Savings Account earns up to 0.57% APY.*
Other savings accounts offering a high rate include:
- Goldman Sachs Marcus high-yield online savings account - up to 0.50% APY*
- Synchrony Bank high yield savings account - up to 0.60% APY*
- CIT Bank Savings Builder account - up to 0.45% APY*
- Discover Online Savings Account - up to 0.50% APY*
- American Express high-yield savings account - up to 0.50% APY* *All rates are accurate as of Jan. 13, 2021
What’s the difference between the FDIC and the NCUA?
The Federal Deposit Insurance Corporation insures deposits at banks and financial institutions, whereas the National Credit Union Administration insures deposits at federally-insured credit unions. When a financial institution is FDIC-insured or NCUA-insured, it protects your money. When you make a deposit at a bank, the FDIC insurance covers your money up to $250,000. When you make a deposit at a credit union, the NCUA insures your money up to $250,000. There are some rules about how many depositors and accounts are insured, so if you're planning to put a lot of money aside, be sure you understand the details as it may impact where you choose to open an account.