Savings Account Shopping? Tips On How to Choose
Choosing the right savings account may make a major difference in achieving your financial goals. Whether you’re looking for a place to keep your emergency fund, save money for a major purchase, or just keep your cash secure, a savings account is often a great option.
When it comes to choosing a savings account, there are a few things to keep in mind as you compare your options and determine which one could help maximize your money and meet your financial goals.
There are several key features to consider when comparing savings accounts, including rates, accessibility, and fees.
Selecting an account with higher rates allows you to earn more interest over time, which could help you reach your financial goals faster.
Before committing to an account, consider what the account offers, the institution’s reputation, and customer service.
Savings Account Shopping List
As you embark on your journey to choose a savings account, you have several factors to consider and compare between banks, including: rates, accessibility to your money, fees, reputation, and security.
Let’s dig into each of these factors a little more.
#1 Protect Your Pennies: Why Insurance Matters
Your first consideration for a savings account is security—make sure any deposit account you open is covered by FDIC or NCUA insurance (FDIC for banks, NCUA for credit unions).
A bank or credit union must have a charter to offer customers or members deposit insurance: this is a rigorous review process, and it means that the institution is monitored by banking regulators on an ongoing basis.
This is good news for you because NCUA and FDIC insurance, depending on the institution type, protect your funds up to certain limits in the event the institution fails.
The rise in neobanks, fintech companies that offer banking services, has added some additional options for savings account shoppers.
Neobanks may look like traditional and digital banks, but the biggest difference is that they lack the distinction of a bank charter. On their own, they can’t offer deposit insurance. These companies often partner with chartered banks to protect customer deposits.
So it’s up to you as the consumer to understand how these relationships work and where your money is actually held.
#2 Achieve Your Savings Goals with Higher APYs
Savings accounts, by definition, pay you interest on your deposits and help you grow your money over time. The amount of interest you earn depends on the Annual Percentage Yield (APY), which includes the interest rate itself plus the compounding of that interest over a 12-month period.
As a reminder, compounding includes the interest you earn on your principal AND the interest you earn on the interest, giving you that extra lift or exponential growth in your money.
According to the FDIC, the national average APY was 0.40% as of May 15, 2023.1 However, Business Insider has reported online savings accounts offering rates over 3.50% APY, with some as high as 4.81% APY.2
Digital savings accounts tend to offer higher rates. Why? Banks that are purely online don’t have the overhead of a physical branch network, and as a result, they tend to pass these savings on to customers in the form of better rates.
When you compare APY rates, remember that these rates fluctuate over time. Just because a bank offers the highest APY right now, it may not remain the leader in the future. It’s important to keep an eye on market conditions and how your bank is adjusting their rates.
#3 Access Your Money When You Need It
Your savings account is your money and you want to be sure that you are able to get it when and where you need it.
Traditional banks have in-person branches where customers may go to withdraw money, and for centuries that was the only imaginable option.
Nowadays, it’s common for digital banks to have an app with easy money transfers to friends and family—who needs actual cash anymore?
Speaking of transfers, be on the lookout for transfer limits. Some financial institutions restrict the number of times money may be withdrawn from the account—too many transfers and they’ll charge you a fee. ATM withdrawals tend to be the exception to these limit policies.
Believe it or not, these restrictions used to be set by the government. Prior to April 2020, the Federal Reserve Board limited certain withdrawals from savings accounts to six-per-month via Regulation D. Regulation D was removed in April 2020, but some banks continue to enforce this limit so do your homework.3
#4 Beware Hidden Fees and Requirements
Before hitting the open button, check the fine print for any fees or requirements that come with the savings account. Some common examples include:
Minimum balance requirements: When your balance dips below a certain level, some banks may charge a fee.
Transfer or withdrawal limits: As we mentioned already, some banks set restrictions on transfers or withdrawals and charge you a fee if you exceed the limits.
Monthly maintenance fees: Some banks charge fees just for having an account.
These fees and requirements are becoming less common. Digital banks and fintechs are increasingly choosing to declare themselves fee free. This is putting pressure on traditional banks to adjust their policies. So again, be sure to pay attention to the details when you open a new account.
#5 Customer Service When You Need It
We tend to ignore customer service… until we actually need help. Do yourself a favor and take a look at customer service options when shopping for a savings account (or any account for that matter).
Chat bots and FAQ sections are helpful, but sometimes you need to talk to a real person to get your problem solved. Check for representative availability, including times and contact methods. For example, representatives may be available via online chat 24/7, but only by phone during specific hours.
As you compare your options, look for a bank that values the human touch and has knowledgeable representatives standing by 24/7 by phone or chat when you need them. (Cough, like Jenius Bank!)
With all the options and factors to consider, savings account shopping may feel complex. It’s important to consider the above factors when you research your options.
To maximize your savings, take time to explore and compare your options to ensure you’re making the right choice for you. And who knows, you may learn that you’re missing out on some major growth by staying at your current institution.