Whether you have your eyes set on buying your first home or want to build a safety net for when the unexpected happens, chances are you’ll need a savings account at some point in your life.
Savings accounts are designed to give you a safe place to store and grow your money until you’re ready to use it. They’re a popular option for achieving both short- and long-term financial goals, and these days, Americans are making saving a priority. In fact, the value of personal savings in the U.S. topped $1.05 trillion in 2018, after having been at $384.4 billion just the year before.
Here’s a look at what to consider if you're looking for the best savings account and some tips for making the decision that’s right for you.
How to choose a savings account
Before you begin looking for a savings account, take some time to evaluate your needs. For many, a savings account with a high APY (annual percentage yield, or interest rate) may be a top priority, since it allows you to earn more money on your savings.
Convenience may also be important to you. Having your checking and savings account with the same bank can make it easy and fast to transfer funds between the two. Being able to have a percentage of your paycheck diverted or have the change from a purchase automatically placed into a savings account are also convenient ways to build your balance. The question is, how important are these options to your situation?
Also consider how easily you want to be able to access your saved money. If you feel you’re going to be tempted to dip into your savings before you reach your goals, looking for an account that’s intentionally inconvenient may actually benefit you. For example, if it takes a few days to transfer money from your savings to your checking account, you could have time to rethink that big purchase and make sure you really want to spend your savings.
However, if you’re saving for short-term expenses and will need to access your money regularly, choosing an account with quick electronic transfers may be a good choice. Keep in mind that federal law limits the number of savings account withdrawals to six per month.
5 tips for finding the best savings account for your needs
Now that you have a good idea of what you’re looking for in a savings account, your next move is to shop around for the right one. There are many options available when you’re looking to save your money. Here are five tips to get you started.
1. Think outside the box
When looking to open a savings account, your first thought may be to visit a major bank or go with the bank where you have your checking account. This can be a great choice, but there are additional options to consider.
Online banks have a lot to offer savers, such as higher interest rates and no or low minimum balances and fees. You can also easily manage most online bank accounts from your phone or tablet 24/7.
“In addition to convenience, you usually find the best high-yield savings accounts at online banks, since their overhead is lower,” says Robert Farrington, founder of The College Investor. “They then pass that savings on to you in the form of higher interest on your money!”
Credit unions and community banks may also offer perks similar to online banks in addition to putting your money to good use. Both often make investments in their regions to help support small businesses and the local economy. Plus, credit unions are owned and operated by their own members, which some may find more appealing than a traditional bank.
2. Comparison shop
Not every bank offers the same rates, fees, or ease of access to your money. Take some time to list out the key factors you need in a savings account. Then see what each bank offers before making any decisions.
“You want a savings account that has a high yield,” says Farrington. “Most savings accounts offered out there have very little to no yield and are not much more than a place to park money. But some pay better. You want to look for a bank that also fits your lifestyle. That's why most people these days opt for banks that offer online banking.”
APY can vary widely from bank to bank, as can the timeframe the interest is compounded (the more often it compounds, the faster your money grows). Some banks require you to maintain a high balance in your account; some have no balance stipulations. Many offer easy access to your account, with online and app options; some don’t. Make sure you know which are the best banks for offering the things that are important to you.
3. Read the fine print
As with most financial products, savings accounts come with terms and conditions. These are important to understand before opening an account so you can get a sense of whether or not it will work for your goals.
Read through any terms and conditions materials or ask a customer service representative about:
- Fees associated with the account (including transaction, maintenance, withdrawal, and ATM fees)
- Requirements for minimum balances and deposits over what timeframe
- Limitations on deposits and withdrawals
- Types of APY applied to the account (e.g., introductory, variable, fixed)
- How often interest is compounded
4. Check your eligibility
To open a savings account, most banks require you to provide some form of identification and a bill with an address on it. Accepted documents often include a passport; driver’s license; military or government identification; Social Security card; birth certificate; or utility, credit card bill, or bank statement.
Credit unions usually have additional eligibility criteria for membership, and you must be a member to open an account. These criteria usually involve some kind of association with the credit union, such as living in a local community, donating to a specific cause, or working in a specific industry.
5. Ask about technology
Many banks offer automatic and online services that can make adding to and managing your savings account easy. Look to see if there are options to have money added to your account with each paycheck or purchase. A bank may also have automatic alert options for when your account falls below a certain amount.
In addition, see if you can manage your savings account using a website or app. Making mobile deposits is a convenient way to add to your savings, so see if that’s an option as well.
It’s important to remember that not all savings accounts are created equal. Choosing a savings account that will work for you and your financial goals takes some time and research. But the payoff can be well worth the effort.
FAQs about savings accounts
What is the difference between a checking and a savings account?
There are a couple of basic differences between checking and savings accounts. A checking account typically accrues minimal to no interest, comes with the ability to write checks and/or a debit card, and is best used for keeping your spending money accessible. A savings account, on the other hand, is an interest-bearing account that is limited to six transfers or withdrawals per month. It’s best for setting aside money for a rainy day or for a specific financial goal like buying a car or saving for a wedding.
What is the typical minimum balance on a savings account?
While most brick-and-mortar banks and credit unions require a minimum balance, the amount will vary by institution. Often, online banks don’t have any minimum balance requirements, though.
Do banks charge for a savings account?
Many banks charge monthly maintenance fees that can be waived if you maintain a certain minimum balance in your account, have a linked checking account, or set up a monthly automatic transfer into the account. However, there are plenty of online banks that offer savings accounts without fees.
Can you lose money in a savings account?
If you deposit your money with an FDIC-insured institution, up to $250,000 will be fully insured, so you won’t lose your money if the bank fails. However, if your annual percentage yield (APY) — which is the interest you are earning on your money — doesn’t keep pace with inflation, you’ll be losing purchasing power. That’s why it’s a good idea to keep your money in a high-yield savings account that is FDIC-insured.
When should I open a savings account?
Financial planners suggest getting a savings account right away if you don’t already have one. Since there are a variety of options, many without minimum deposit requirements, there’s no reason to wait to open a savings account. Shop around for a federally-insured institution that meets your needs and offers a high APY, and make sure you meet all the requirements for the account you choose.
Does opening a savings account affect my credit score?
In most cases, banks and credit unions use a soft credit pull to verify your identity when you open an account, which does not affect your credit score. If the institution conducts a hard inquiry, it will affect your credit for a few months, but not substantially.