Are you looking for a new savings account? With the wide range of options available, it pays to do your research before signing up with the first account you find. Though many of today's savings accounts offer perks and incentives, there are a few things to look at in addition to the best rate you can get. Here are five tips to keep in mind when shopping for a savings account.
Check Out the Minimum Deposit Requirements
Some savings accounts require a minimum deposit in order to open the account, and they may also require customers to keep a minimum balance in the account in order to earn the stated interest rate. For example, according to the Bank of America website, customers require a minimum deposit of $25.00 to open a regular savings account. Sometimes savings accounts may incur service charges if the balance drops below a certain minimum.
Investigate Deposit Insurance Coverage
Before depositing your money with a bank or thrift institution, check to see if your deposit will be covered by the Federal Deposit Insurance Corporation (FDIC). This organization insures deposits of up to $250,000. If the institution fails, the FDIC will cover the loss and your money will be protected. Funds deposited to a credit union are covered for the same amount under the National Credit Union Administration.
Dig Deeper Into The Interest Rate Calculations
While "what's the interest rate on this savings account?" is an easy question, the answer may be more complicated. Some savings accounts offered tiered interest. This means the rate increases depending on the account balance.
Another important point to consider regarding the interest rate on savings accounts is how often the interest is paid and compounded. The compounding frequency within the year determines the annual percentage yield (APY) on your savings, which may be different from the stated annual yield.
It can be easy to mix up yield types when visiting multiple bank websites.Instead, you may prefer to use an online rate comparison tool to review savings account rates to ensure you're comparing the same type of rate across institutions. For example, Bankrate's "National Highest Yield MMA and Savings Accounts" rate comparison tool presents the APYs of accounts across the country for easy review.
Review Service and Account Fees
While some savings accounts may offer free services, others come with service charges or bank fees. This means you may pay a fee to deposit money, take a cash withdrawal in a bank branch or another financial institution's ATM, or to conduct other transactions on your account. Sometimes you will pay a set monthly service charge which includes a certain number of transactions. Other accounts may charge by the transaction only. If your bank charges more than the occasional fee, it may undo the benefit of a great interest rate.
Consider the tradeoff of a great interest rate against the convenience of making deposits and withdrawals, and pay attention to the fine print on your banking agreement. Is there a limit on withdrawal amounts? If you like to do your banking in person, take a look at the physical location of the financial institution relative to where you live or work. Is it easy to get to? If you prefer online banking, visit the website to see how easy it is to manage and transact on your savings account. On the other hand, if you're a spender, you may prefer a savings account that is difficult to access to cut the temptation of unnecessary withdrawals and spending.
The Bottom Line
Choosing the best savings account to meet your needs involves more than simply picking the account that looks like it has the highest rate. Some savings accounts have minimum deposit requirements to earn the stated interest rate or avoid fees and service charges. Ask about deposit insurance to protect your savings should the financial institution run into money troubles. Examine compounding frequency for the interest rate, and when comparing rates from different institutions, make sure you're looking at the same type of rate for each. Get the rundown on service and account fees, and also make note of where you will do your banking - nearby bank or ATM locations may make both depositing and withdrawing funds easier - a double-edged sword if you have a hard time saving money.