Saving money is important but taking action is easier said than done...until now.
First things first, you may be wondering, are savings accounts still relevant in 2017?
The answer is: yes.
While socking money away in a low commitment account like Acorns has its benefits and good looks (seriously, the design is so cool and user-friendly), a savings account is the underdog in helping your money grow quickly without locking it up in a retirement or investment fund.
Essentially, this means you’ll still have immediate access to your money, unlike stocks and retirement accounts, but it will grow faster than if you just leave it in a checking account, which typically offers no growth at all.
The high-interest rates available right now also make opening a savings account quite appealing. Since the process is easy and secure, starting an account could be one of the best financial decisions you make this year.
Current interest rates are downright generous, so it’s a great time to take advantage of getting your financial health in check.
The truth is, many Americans keep the majority of their money in checking accounts, which comes at a cost. According to a survey from Bankrate.com, just 37% of Americans have enough to pay $500 to $1,000 in the event of an emergency or unexpected expense.
Opening a savings account and setting aside some money won’t fix all of your financial woes overnight, but it can help set you up for success.
4 reasons why you should consider one:
- Interest rates are higher than a checking account and easy to find
- Signing up is quick and painless and provides long-term benefits
- 24/7 access to funds that grow faster than keeping it in a checking account
- Peace of mind knowing money is safe and secure
High Interest Rates
A look at our best savings accounts can give you an idea of the high interest rates available right now.
Some banks, like CIT Bank, offer 1.35% APY – which is 22 times the national average – when you open an account and make a deposit of at least $100.
Other banks, like Ally, currently offer 1.20% APY with no requirement of a minimum deposit. Synchrony Bank also requires no minimum deposit to open an account and offers 1.30% APY.
Finding an account that’s right for you is key. The interest rates above may not seem like anything to get excited over, but given that some banks still only offer 0.01% APY, there’s a large spectrum of choices out there and you deserve the best one!
How to Choose a Savings Account
In case this is your first time exploring savings accounts, here are some of the basics you should know.
What is a savings account?
A savings account is a safe place to stash money to use at a later time. Until then, the balance remains in your account and accrues interest (a.k.a. your money earns more the longer you leave it alone).
You can use the account to build up an emergency fund, vacation fund, rainy day fund...you get the idea. It’s a good way to grow money in a separate account while maintaining direct access to it.
The biggest difference between a checking account and savings account is the return on interest earned from having a savings account.
- A checking account gives the convenience of being directly linked up to your debit card, but in general, does not earn any additional money. A savings account is just as liquid but earns interest on the balance. It’s not meant for using to withdraw cash on a regular basis.
The biggest differences between a savings account and a retirement account are 24/7 access and earning rate.
- Money does grow faster in a retirement account but is less accessible. If you tap into the account before retirement age, you’ll be charged an early withdrawal penalty, plus taxes.
- Money grows in a savings account at a lower rate but is accessible 24/7. For example, if you need to withdraw money to pay for an unexpected medical bill, you’ll be able to do so without paying a penalty fee.
What is APY?
APY stands for Annual Percentage Yield and tells you the rate you’ll earn over a year of savings, taking compound interest into account.
Not all accounts compound interest the same way; some compound daily, monthly, or even annually.
The more times your money compounds per year, the higher the APY. So, for example, if it compounds monthly, you’ll earn more money than you would if the account compounds annually.
What are minimum deposits?
You may have seen a few types of minimum deposits while researching what savings account you should sign up for.
A minimum initial deposit is the minimum amount you’ll need to deposit in order to open an account. Not all banks require it but some do; for instance, CIT Bank asks for a minimum deposit of $100 to open an account. In return, they give you a higher interest rate.
A minimum monthly deposit is exactly what it sounds like – it’s the minimum amount of money you’ll need to deposit each month to continue earning interest on your savings. If your income varies month to month, you may want to skip opening an account that requires a minimum amount every month (but don’t worry, there are plenty to choose from).
Are there fees?
It depends on the account. Some have maintenance fees, annual fees, or minimum balance fees, while others have none.
Banks are typically forthcoming with this information but you can also find it in the fine print when comparing your options.
How to withdraw money from a savings account
To use the money in your savings, you can:
- withdraw cash from an ATM or bank
- get a check printed by your bank
- transfer money up to 6x per month
The “6x per month rule” is due to a federal law that sets limits for certain types of withdrawals. Checking accounts aren’t affected by this rule but savings accounts are, which is why it’s best to pay recurring bills through a checking account. Without limits from your bank, you could potentially go over the federal limit, and the bank gets in trouble if that happens.
Good to note: there are no limits to the number of deposits you can make to your savings account.
How to find the best savings account
These days, the most competitive savings accounts are available through online banks.
Besides offering all the functionality and customer support you’ll need, their interest rates are consistently higher than banks with physical locations.
If possible, look for a high-interest savings account that can help your money accumulate faster. The higher the rate, the faster your account can grow.
Finding the right savings account doesn’t have to be difficult, in fact, the process is meant to be as easy and painless as possible. Often times, the biggest hurdle is convincing ourselves that it’s time to act.
Bottom Line: A savings account is a powerful way to take control of your finances and make them work harder for you. It’s secure, easy, and offers big returns in the long run.