You can find numerous comparison sites that offer varying lists of the best savings account, all claiming to have discovered the winner.When you search for “best savings account,” you will see a flood of sites that have a different list, with each site claiming to be the winner. Some of that is information which is really useful. There’s a great deal of recycled rankings which are determined by the bank that is paying for the positioning for that month.
The reality is, there is no single “best” savings account for everyone. The choice of the right one will depend on what it will be used for, how frequently you will need access to the money and the amount of money you have to begin with. Here’s how to get your thinking right.
Interest Rate Matters, But Not the Way You Think
It’s easy to simply choose the highest advertised rate and take the top result. However, there are a few points to keep in mind.
It is quite common for many banks to offer a great looking rate, but only for the initial three to six months; after that, the rate is much lower. You may settle into a very good rate for a couple of months, and then a mediocre rate for a couple of years and not realize it.
It’s also a good idea to compare the rate to a savings account that you may already have. Even if you’re just getting a few dollars a year in a standard account, a “decent” interest even from a high-yield account is a substantial improvement, and sometimes it could make the difference between earning a few dollars per year and earning something worthwhile in a similar balance.
Online Banks are Better than Traditional Banks
Many people are shocked when they find out that the online-only bank may be paying a much better interest rate compared to a traditional bank that they’ve been banking at for years. The answer is simple: online banks have the lower overheads because they do not have to keep up branches, and many online banks offer the savings in the form of better rates to their customers.
The downside is you can’t walk into a branch if you need assistance in person. If you have a savings account that you’re primarily just letting sit and grow, it’s usually worth it, but it’s a legitimate thought if you really prefer to go in person to the bank.
Beware of charges that quietly subtract from interest!
Although a savings account with a great interest rate seems great, if there are monthly fees that eat into most of your earnings, it’s not great. Some waive them if you have a minimum balance, certain conditions, or if you drop below the minimum balance at any point in time, you are eligible for the fee.
It is important to review the monthly fee, minimum balance requirements, and the number of withdrawals that may be made without a penalty prior to opening an account. This information doesn’t always pop up in bold headlines but it is just as significant as the rate.
Consider how you’ll use it in practice
The priorities of an emergency fund savings account are different from the priorities of a specific savings account, such as saving for a vacation or for a down payment.
When time is of the essence, it helps to have your money readily available. You don’t want to have to wait days to transfer money to your checking account or incur penalties. If you have a goal you want to save for, where you won’t be needing quick access, you may consider more interest than access, as you are not going to need the money as quickly.
Others may benefit from separating their savings account and have several savings buckets such as a separate account for emergency savings, a separate account for vacation savings, a separate account for savings for a purchase you plan to make in the future, etc. Not required, but it can help to keep things on track and avoid spending money for things other than this.
FDIC Insurance or Equivalent – Non-Negotiable!
However you open your account, ensure that it is covered by the needed deposit insurance from your country, such as FDIC in America. This will safeguard your money up to a certain limit if the bank collapses – and it’s a given of a real bank and a credit union.
If you are thinking about using an app that is newer than the ones previously mentioned that has an unusually high rate for a savings-type product, please take a closer look at the product and make sure that you know that the entity you are using is actually keeping your savings in an insured bank account behind the scenes, or, it’s an investment product advertised as a savings account. In case of failure, the difference is significant.
A quick and easy way to compare options
Instead of comparing thousands of accounts, chose just a few that have a few of the key attributes: no monthly fees, fairly easy access, adequate insurance, and then compare their interest rates and any promotions they may be offering. This makes it easier to narrow down your choice to something manageable, and you are picking between things that are all pretty reasonable, and not looking to find a “best” that simply may not be suitable for you.
The Bottom Line
The greatest saving account is not always the most flashy, it’s the one that has a great rate as well as no hidden fees, enough insurance, and accessibility that aligns with how you will spend the cash. Although the rate is often the only reason people bank online, it’s important to read the fine print of any online bank before transferring any funds, introductory rates, fee structures and withdrawal limits can all make a significant difference.
Disclaimer:
This article provides general information only, and is not financial advice. If you need advice that is relevant to you, speak with a licensed financial adviser.
