It’s a financial management basic: You should have at least one designated savings account.
Choosing a savings account can be overwhelming, though. You have so many options, and you want to find the best possible account for you. Get it wrong, and you might feel stuck with a bank that doesn’t serve your purposes well.
“Banks have high switching costs,” said John Liston, a former investment banking analyst and the strategy and operations manager at All Set. “Most consumers will not switch banks down the road.”
Liston isn’t referring to the monetary costs of switching banks. Instead, he’s talking about the hassle of moving your money to a new institution and the potential problems that come when you have to change automatic deposit information.
In order to make sure you open a savings account that works for you, ask these six questions before signing up.
1. How much will you earn?
When opening a savings account, many people focus first on the annual percentage yield (APY). That’s the interest you earn for keeping your money at that bank.
However, there might not be a lot of difference between yields. Most major banks today offer rates between 0.01% and 0.05%, though you may be able to find the rare 1.00% APY.
Additionally, some banks offer a tiered yield structure. You could receive a higher APY as your account balance surpasses $25,000 or $50,000. If you have a goal to grow your account dramatically, that structure might be appealing.
Though APY is an important consideration, it shouldn’t be the only thing you consider as you shop around. “When comparing savings account yields, make sure to factor in any minimum balance or maintenance fees,” said Ian Nohner, a certified financial planner with the Nohner-Black Group.
You could find an account that offers a higher yield, but the requirements of the account might otherwise make it undesirable. Instead, consider other characteristics that make it a better fit for your lifestyle and priorities.
2. What’s the initial deposit requirement?
“The bank may require that you make a minimum deposit into the account,” said Nohner. He pointed out that most banks have a small deposit requirement of $25 or less. However, if the account has a higher yield, you might be required to provide a larger initial deposit.
If you plan to open a savings account with money you already have on hand, the initial deposit might not matter. However, if you want to open an account in order to start your savings, it might make more sense to focus on an account with no minimum initial deposit.
3. Are there minimum balance requirements?
It’s possible to find a savings account with no minimum balance requirement, but you might be able to find a higher yield if you’re willing to keep more money in the account, said Nohner.
Pay attention to how often the account is evaluated and assessed for fees. In some cases, Nohner explained, there is a daily balance requirement. You can be charged a fee if your balance drops below the prescribed amount at any point in the month.
Other banks, though, figure your fee based on an average balance. As long as your average balance for the month is above the minimum, you can avoid the fee.
“If you’re planning on using the savings account for short-term goals, it may be beneficial to find an account without minimum requirements,” suggested Nohner.
4. What fees could you be charged?
“For the average consumer, fees are the number one thing that should be considered when opening any sort of financial account,” said Liston. “Fees vary widely from one bank to another and are often triggered for different reasons.”
Liston recommended thinking about your lifestyle and the types of fees you are likely to encounter as you choose a savings account. You might need to check for ATM fees or see if there are fee reimbursements for these transactions.
Read the fine print before you open a savings account. Check to see if you could be charged for paper statements, debit card replacements, and other costs that might trip you up. Ask a customer service rep if there are ways around monthly charges. In some cases, for example, you can avoid maintenance fees if you arrange for automatic deposits into the account.
Liston pointed out that some accounts may come with extra benefits that could balance out extra fees.
“Look to see what perks are offered in exchange for higher balances down the road,” he suggested. If you plan to keep growing your account, perks received at high balance milestones can make small fees worth the cost.
5. Are money market options available?
Instead of focusing on traditional savings accounts, Nohner suggested considering a money market account. A money market account combines traits of both savings accounts and checking accounts. It pays higher interest rates than a savings account.
The downside to money market accounts, Nohner warned, is that they usually come with higher minimum balance requirements. You need to be reasonably sure you won’t drop below that minimum if you forgo a savings account in favor of a money market account.
6. Is the account compatible with financial apps?
Do you use a financial app such as Mint or Personal Capital to track your spending and saving? If so, make sure your financial institution is compatible, said Steven Fox, founder of Next Gen Financial Planning.
“Outside account aggregation services allow you to use a much wider variety of personal finance tools than what the bank itself may offer,” said Fox. “Aggregation also removes the need to log into multiple places to review your account transactions or investments.”
It seems like a small thing, but if you like to keep everything in one place for a big-picture approach, make sure you choose an account that’s compatible with your favorite personal finance app.
Ask the bank whether it allows external tools to access your account. You can also check your app to see what financial institutions are supported.
“Most large financial institutions, and a growing number of small ones, allow their customers’ data to be exported,” Fox continued. “But you should check just to be sure.”
Open a savings account and get started
Now that you know what you’re looking for in a savings account, it’s time to take the next step. For the greatest convenience, choose a bank that will let you open a savings account online. That way, you can start saving from the comfort of your home.
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