Best Savings Accounts for May 2020
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Every year, “saving more” is among the most popular goals that Americans set for themselves. It’s an important goal, even if many of us fall behind on building the stash of cash we would like to have. Additionally, many of us have some very specific things we want to save for, like weddings, vacations, an emergency fund, or a down payment for a home or car.
Any way you look at it, having a savings account that earns a high interest rate is a good idea. 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 saving 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 a high-yield savings account. These accounts start with the same amount of money and both are compounded monthly.
|Traditional Savings Account
|High Yield Savings Account
|Interest earned after 1 year||$5.00||$93.29|
|Interest earned after 3 year||$15.02||$285.12|
|Interest earned after 10 year||$50.25||$1,015.24|
How to pick the best savings account for you
We’ve introduced you to APY as an important factor to consider when looking for a savings account. Here are some other things to look for during your research.
Some savings accounts are free, while others come with fees. These can include charges for making transactions, transferring money, or going below a minimum balance. Some even charge you an annual fee, like a credit card would.
Take note of all the fees associated with a savings account you’re considering. Then think of how you’ll be using the account and whether or not paying the fees are worth what you’ll get in return. If you plan to keep a small amount in your account for a short period of time, annual fees and minimum balance fees are likely not worth it.
Minimum deposits are common with savings accounts. This is the smallest amount of money you can open an account with. Many online savings accounts have very low minimum deposits and some don’t require one at all. Other banks can require minimum deposits in the thousands or even tens of thousands.
Look for a minimum deposit that makes sense for your savings strategy. If you’ve just started saving, then an online bank with no minimum or a low minimum may be a good fit for you.
Like the minimum deposit, many savings accounts have a minimum amount you have to keep in the account 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. Though 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 okay with paying a fee.
If you’re planning to regularly withdraw and deposit into a savings account, look for one that doesn’t require a minimum balance. This will allow you to get your money when you need it and not have to pay for that access.
As discussed earlier, you’ll want to look for a high APY on any savings account. You’ll generally find these are higher with online banks and credit unions than with traditional banks. Also, look for how often interest is compounded. You’ll earn more interest faster with an account that compounds monthly than one that compounds only quarterly.
Online vs. in-person banking
This is a matter of personal preference. Both online and brick-and-mortar banks have their advantages. Online banks usually have high APYs, low fees, low minimums, and lots of online/app features that make managing and growing your money easy.
But If conducting business locally and in-person is important to you, a more traditional savings account may be your best bet. However, you may find you’re sacrificing earnings for this kind of service.
Frequently asked questions
Is my money safe in an online savings account?
Generally speaking, up to $250,000 of your money is safe if you’ve deposited it in a savings account a Federal Deposit Insurance Corporation (FDIC) insured bank. FDIC is a federal agency that protects deposits made by consumers in insured banks or financial institutions.
How much should you have in your savings account?
Obviously, the more money you have in a savings account, the better if you’re earning interest. But only you can determine how much you “should” have in your savings account. You’ll want to make sure you have at least the minimal amount to keep the account open and avoid any fees. Outside of that, the rest depends on your financial situation and priorities.
Can you lose money in a high-yield savings account?
Once you deposit money in a high-yield savings account, that money stays there, unless the bank makes deductions for fees or you remove the money yourself. Your balance will grow over time as interest is compounded and added. But unlike with stocks and investments, which gain and lose value with market fluctuations, you don’t risk losing the money you’ve put into an FDIC-insured high-yield savings account.
Can I take money out of my savings account?
You can take money out of a savings account when you need to. You can perform a withdrawal or transfer money into another account. However, the federal government limits the number of times you can do this in a month. You can only take out or transfer money out of a savings account through mobile, phone, online, or fax transactions up to six times per month. You can transfer or deposit money into your savings as many times as you want.