Our pick for digital banking: American Express® High Yield Savings
- Monthly fees: $0
- Interest compounded daily
- Minimum deposit to open: $0
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When weighing the benefits of a free savings account, look at such factors beyond the monthly fee:
Free savings accounts can be found at two types of financial institutions:
Savings accounts are designed to help you save money, but you won’t be able to avoid all fees. Depending on your bank, you could face:
Interest counts as taxable income, which means you’ll need to file a 1099-INT with your annual tax returns. You won’t pay tax on the balance in your account — only on the interest you earned in that year. For example, if your income is taxed at 25% and you earn $200 in interest, you’ll pay $50 in taxes.
Tax-Free Savings Accounts (TFSAs) aren’t a thing in the US, but they are available in Canada to individuals over age 18. With a TSFA, Canadians can deposit up to CAD $6,000 a year and enjoy tax-free withdrawals on any gains and dividends they receive.
Yes. Your savings account balance is protected by the federal government for up to $250,000 across all accounts at one bank or other financial institutions.
Banks are a business. When you deposit your money into a free savings account, you’re effectively lending money to the bank. Your bank pools your money with other members’ and lends it out to borrowers, charging them interest. The interest they earn from lending out your money is likely a benefit they’re willing to waive fees for.
Free savings accounts are a solid option for growing your money — and some even offer high interest rates. You’ll likely find most free savings accounts at online banks — but that doesn’t mean you should avoid brick-and-mortar institutions. They may have the accessibility you’re looking for.
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