Most people have at least two kinds of accounts: a savings account and a checking account. In my case, my checking account holds my money temporarily before it gets various uses. On the other hand, my savings account is my holding account since it keeps my money safe and accessible until when I am ready to spend on my financial goals.
That said, there are many savings accounts offered by various institutions, from traditional banks to online-only banks. There are so many options to choose from that it can be very confusing. However, do not fret; I will give you some pointers to help you get a good savings account.
Each one of us has different goals for saving money. My saving goal is to create an emergency fund, whereas, for you, it might be to save up for a down payment on a home or a car. For others, it might be saving for traveling, home repairs, or pet expenses. If you want to save for multiple goals, you might need to get an account that allows you to partition your money as per your needs.
If you intend to move the money a lot, you should avoid a savings account since withdrawals are limited to six times a month. The best account in this case would be a cash account with a high Annual Percentage Yield (APY)
When I was looking for a savings account, I wanted an institution with excellent mobile banking services and ease of access to money. That is why I went for a bank with a mobile application. Apart from mobile banking, the other factor that I was unwilling to compromise on was a good interest rate. Your needs might be different from mine, but you have to define them before getting a savings account that matches your goals.
When deciding whether to create a savings account with my existing bank, I decided to go for a new bank. I did this so that I do not have easy access to the money. However, if you want the ease of accessing all your accounts from one bank, then get a savings account with your existing bank.
When choosing a savings account, I went for high-yield savings accounts. These accounts are like a regular savings account, but they offer a higher interest rate than traditional accounts. Traditional savings accounts earn very little interest, an average of 0.05%. On the other hand, high yield savings accounts have an average interest rate of 0.5% to 1% annually. This interest is not a lot, but it is twenty times more than that offered by traditional savings accounts.
If you like to scheme over documents quickly, you will want to carefully read the account disclosures and terms before signing anything. You need to take note of the following issues:
My savings account required that I keep a certain amount of money in my account at all times so that I can get the interest. These minimum balances vary across banks and if one does not appeal to you, then keep on looking till you find one that does.
It makes no sense to have a monthly maintenance fee on my account because I want to grow my money. I avoid savings accounts that have a maintenance fee. Plus, there are plenty of high yield savings accounts to choose from that have no maintenance charges.
You also need to assess other issues like:
- Transaction, Withdrawal and ATM fees
- Limitations on deposits and withdrawals
- Type of APY used for the account. Is it an introductory, variable or fixed Annual Percentage Yield (APY)?
- Compounding frequency of interest
Do not let the information above overwhelm you. All you need to do is open a savings account with a reputable bank that offers you a good interest and does not charge any monthly fees. This reduces the pressure and worry and you can always access your money at any time you want. Plus, you can open as many savings accounts as you want so that you are not constrained to one account.