You’re ready to get serious about saving money and want to open a savings account. But with so many choices out there, it can be overwhelming to decide which one is right for you. How do you know what to look for or how to score the best interest rates?
Here we’re breaking down the steps to take so you can choose the best savings account for you.
Decide on what type of bank you want
You can open a savings account at several different financial institutions. After looking at your financial goals with saving, consider these three options:
- Traditional bank.
- Online bank
- Credit union
Let’s take a closer look at what each of these options entails.
Places like Bank of America or Citibank are considered traditional banks. Traditional banks have a large network of banks and ATMs and also have physical branches. They are likely national and well-known financial institutions.
You can typically find many different financial products at traditional banks with traditional savings accounts, money market accounts, and certificates of deposit (CDs). However, traditional banks may not offer the best Annual Percentage Yield (APY) for savings accounts as having physical branches and personnel require more money to keep in operation. For high interest rates, online banking is more likely to have you covered.
Online banks operate, for the most part, online. Online banks include names like Ally, Chime, Varo, and Marcus by Goldman Sachs. Capital One, renowned for its credit cards, is operating mostly as an online bank but has begun a new type of in-person banking with the launch of cafes, safe places for online banking.
Because online banks do their business online and save money on physical, brick-and-mortar bank branches, they typically offer higher interest rates compared to traditional banks. So you want to compare the Annual Percentage Yield (APY) at a traditional bank to an online bank and review the pros and cons accordingly.
If you want more of a local, community bank you can check out credit unions. Credit unions are member-owned financial institutions that share profits with their members.
So when it comes to the APY at a credit union, it’s likely to be higher than a savings account at a traditional bank. Credit unions also offer various financial products and have membership requirements to join. For example, some may be based on your location or your job/profession. You can find a credit union in your area here.
Things to consider when selecting a bank
Current bank or another bank?
When choosing a bank account, you want to find something that works with your financial goals. You likely already have a checking account, so you want to figure out if you want your savings account with your current bank or try out another bank.
When you save with your current bank, you might have familiarity and have an easy time transferring money. Many banks offer overdraft protection. If your account balance falls, the benefits of a savings account with your checking account is your bank will make automatic transfers to cover you so payments won't bounce and you won't incur insufficent fund fees. If you go with another bank, you might be able to find higher interest rates. On top of that, it could be harder to access your savings which can be a good thing if you’re consistently dipping into your savings.
When you start saving, you can earn interest on the money you stash away. The interest rates, expressed as Annual Percentage Yield (APY), vary among banks. To get the best rate, you want to look for a high-interest savings account.
Online banks and credit unions tend to have more competitive rates than traditional banks. It’s important to note though, that the APY rate can change at any time regardless of which bank you choose. When the feds cut down interest rates, banks typically follow soon thereafter. Check out the APY at each bank you’re considering to find the best rates.
You also want to read the fine print and see if the savings account has any fees. Sometimes banks will have a monthly maintenance fee if you don’t meet minimum balance requirements. So for example, Bank of America charges $8 per month if you don’t meet the $500 minimum balance requirement. Saving money is all about growing your money, so when fees are involved it takes a bite out of your wealth.
Although you want to keep your money in your savings account, there may be times you need to make a withdrawal. Check to see what ATM withdrawals fees may be at various banks. Many online banks are partnered with nationwide ATMs without fees and even refund charges incurred if you need to use an out-of-network ATM.
What is the initial deposit requirement or balance minimum?
Opening a savings account may require an initial deposit to create an account, so you want to find out what that number is. For example, to open a savings account with Bank of America, there is a minimum required deposit of $100.
On top of that, there may be minimum balance requirements. Bank of America has a minimum for their savings account. If you do not meet the $500 minimum balance requirement, there is an $8 monthly maintenance fee.
Having a minimum opening deposit can make a difference if you’re starting to save from scratch. So let’s say you have $20 to save, you’d want to go with an online bank that has no minimum opening deposit. If there is a minimum balance, consider how often you might be touching the account and review your financial goals.
What are you saving for?
Saving is always a good idea but you want to get clear on what you’re actually saving for. Saving money doesn’t matter much to us until we get focused on why we’re saving. Knowing what you are working toward can help you decide on which banks to choose based on your financial goals. For example, your emergency fund might be in one savings account with a bank and your vacation fund in another savings account at a different bank.
Write down what you want to save for, so you have that in mind in the decision-making process. Some examples might include saving for an emergency fund, car, vacation, home renovation, etc. You can also come up with initial financial goals, like saving $10,000 for emergencies.
Can you open multiple accounts?
Ally Bank, which is an online bank, allows you to save in “buckets” to meet your various financial goals. I use Capital One 360 which allows you to create various savings accounts and nickname them. Being able to nickname and have separate accounts allows you to be hyper-specific about what you’re saving for and what that money should be used for.
Something else to consider is how accessible your money is. If you transfer money from your savings account to your checking account how long will it take? You should also know there are federal limits in place which cap you at six withdrawals a month. However, this limit is currently waived due to the pandemic.
Many things have moved online these days but not all financial institutions have the same user experience. When comparing bank accounts, you want to double-check mobile capabilities. Consider the following:
- Does the bank have a mobile app?
- Is it easy to use?
- Is it available on iPhone/Android?
- Can you deposit checks?
Is it easy to transfer money?
You can do a better job at managing your money when you have the digital tools that make it easy. To get more information on a bank’s mobile capabilities you can check to see reviews on the Google Play Store or the Apple Store. You can look at the rating as well as consumers’ comments about their experience.
Many savings accounts are FDIC insured. FDIC is the Federal Deposit Insurance Corporation, a government entity serving consumers by protecting their deposits. The FDIC insures up to $250,000 per depositor, per bank so if you see "Member FDIC," you're in good hands.
These protections are in place if a bank fails. So far in their long history since 1933, nobody has lost any insured funds due to a bank failure. When reviewing banks, make sure they have this designation. You want the bank to be FDIC insured so you're covered in case something happens.
Best savings accounts
If you’re looking for a savings account you can review the options from traditional banks, online banks, as well as credit unions. Below we’ve listed 10 of the best savings accounts to choose from, in no particular order.
Varo offers a high-yield savings account that offers a higher-than-average Annual Percentage Yield (APY). You can earn 0.81% APY to begin and up to 2.80% APY if you meet these requirements each qualifying period:
- Make at least five qualifying Varo Bank Visa® Debit Card purchases AND
- Receive qualifying total direct deposits of $1,000 or more
On top of that, Varo has no minimum balance requirements or opening deposit requirements either. You also can automatically save a percentage from your direct deposits or save your spare change from your purchases. All of these features make Varo one of the best places to save.
Ally Bank is a savings account option that has no fees and has no minimum balance requirements. The APY is 10x the national average, according to their site, and you can save in different “buckets” so you can stash cash for various financial goals.
Another option is 360 Performance Savings by Capital One. This savings account has no fees and doesn’t have any minimum balance requirements or minimum deposits to open an account. The APY is 5x the national average, according to their site.
American Express has a high-yield savings account that earns 10x what the average savings account will get you. There are no minimums or monthly fees and they have customer service available 24/7. You can get up to 9 withdrawals per month. The interest on your savings account compounds daily but you get paid out once a month.
Marcus by Goldman Sachs
Marcus by Goldman Sachs is an online savings account that offers several perks. There are no minimum balance requirements or fees, plus there are unlimited withdrawals.
You don’t need a minimum deposit to open an account and their interest rates are 4x the national average. One great perk is that there are same-day transfers between accounts.
Discover Bank has an online high-yield savings account that has zero fees and no minimum deposit as well. That means you can avoid minimum balance requirements and can get started with saving right away. According to their site, you can earn an APY 5x the national saving average.
Another high-yield savings account option is Axos Bank, which has a minimum opening deposit of $250. Though there is a minimum opening deposit requirement, there are no minimum balance requirements so you can avoid any monthly maintenance fees. Interest is compounded daily so that plus the higher APY, can help you get a return on the money that you deposit.
Barclays has an online savings account that has no minimum balances to open an account and no monthly maintenance fees. You can easily make transfers to and from other financial institutions. According to their site, the interest rates are 5x the national average.
CIT Bank has a savings account with a $100 minimum deposit requirement. While there are no maintenance fees, the bank requires a $25,000 minimum balance or a $100 monthly deposit. Your APY can increase after increasing your balance.
Chase Savings offers a savings account but can cost you. You could pay up to $5 per month in monthly maintenance fees if you don’t meet the $300 minimum balance requirement. You can also waive this fee if you set up automatic savings transfers of $25. You can also get hit with a $5 fee each time you go over the six withdrawals limit.
The bottom line
When it comes to savings accounts, you have a ton of options. You want to go with a bank that has your financial interest at heart. Reviewing these various banks, the terms and conditions, fees, and any minimums can help you choose a savings account that fits your lifestyle and financial goals. Capital One is mostly an online bank but also has some cafes.