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Guide to savings accounts

Your guide to savings accounts

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Are you getting the strongest interest rate for your nest egg?

The right type of savings account for your situation depends on what you’re hoping to get out of it. Some of us are looking to passively earn the highest return possible, while others are looking to lock away our money long term without easy access.

Today’s interest-bearing accounts offer competitive interest, flexibility and protection to keep just about any savings amount safe.

Our top pick: American Express Personal Savings High Yield Savings Account

  • 2.00% APY
  • No monthly fee
  • No minimum balance

Our top pick: American Express Personal Savings High Yield Savings Account

Enjoy no monthly fees and a competitive APY with this online-only savings account.

  • Around-the-clock online and phone support
  • No fees to hassle with
  • FDIC insured
Promoted

Compare savings accounts

Name Product Fee Minimum deposit to open Minimum balance to earn interest APY
$0
$0
$1
2%
Enjoy no monthly fees and a competitive APY with this online-only savings account.
$0
$100
$25,000
or set up a direct deposit of $100+ each month
2.25%
A super-high interest rate if you're in the habit of saving at least $100 per month or have $25K in the bank. From Nov. 27, 2018 through Dec. 20, 2018, CIT Bank will donate 100 meals to people in need.
$0
$0
$0
2.05%
Earn one of the highest interest rates without the fees.
$0
$0
$0
2%
The most common services and transactions are free with Ally Bank.
$15 per month
(can be waived)
$25
$0
1.8%
Earn one of the highest interest rates if you have at least $10,000 in savings, and access your money by ATM, check or bill pay.
$0
$1,000
$0.01
2.16%
With no maintenance fees, it's easy to grow your savings. Put your money to work with an online account from CIBC Bank USA.

Compare up to 4 providers

What is a savings account?

A savings account is designed to store your money while earning you interest, separating your savings from the money you use for everyday expenses. How much interest you earn depends on the type of savings account and the institution you bank with.

Unlike an everyday checking account, a savings account can help grow your money by attracting interest on the average balance you keep in it. Some banks and select savings accounts offer perks like no fees or stronger rates if you maintain a specified minimum balance monthly.

Most types of accounts are insured by the FDIC, a government agency that backs up to $250,000 of your savings in protected accounts.

Interest rates explained

The rate of interest you earn on your savings is set by your bank, with interest rates generally fluctuating with the market. Interest rates vary by bank and the type of savings account you choose.

Savings accounts often accrue daily compound interest. With daily compound interest, your bank calculates interest on your balance each day using a specified rate. In effect, you end up earning interest on the interest you’ve already earned. Your bank then pays out the compounded interest monthly as a credit to your account.

Interest you earn on your savings account is taxed at the same rate as any earned income. And though you won’t pay taxes on savings below $10, you still have to report it to the IRS.

Why do banks offer interest rates?

Your money doesn’t just sit in a savings account untouched. When you open an account, you give your bank access to lend your money out to others.

Banks reward you for that access with interest rates, even if those rates are slightly lower than the rate they charge borrowers. It’s how they stay in business.

Some banks offer special rates on a limited portion of your account balance as an incentive to open an account with them instead of the bank down the street — like 5% on the first $1,000. But it may still limit how often you can transfer funds other savings account to take advantage of the highest interest rate available.

The importance of saving

Do you want to be able to afford a house, a new car or your child’s education not just “someday” but in the next few years? An easy way to reach toward your savings goals is by putting money away in a savings account.

Another benefit to fostering a nest egg is that you’ll have a cushion if life doesn’t go the way you planned. You simply can’t predict the future: Your roof might spring a leak, for example, or your tire could go flat unexpectedly. The financial security a savings account provides could put the wind back into your sails in a financial emergency.

Accessing your money

Most banks make it easy to access your funds from a savings account. Depending on your account and financial institution, you can withdraw money through a bank teller, at an ATM or (until they go the way of the dodo) paper checks, among other options.

In most cases, you link your account to a checking account — even if it’s with a different bank. You can then transfer money between accounts, spending down or withdrawing the funds from your checking.

Your savings account will likely restrict how often you can access the money in your savings account, however. The Federal Reserve limits “convenient” withdrawals from savings accounts to six a month. These withdrawal include accessing your money online, over the phone or through autopay. You might avoid this limitation by withdrawing money in person at your local bank branch.

Types of savings accounts

You’ll find a variety of savings accounts offering varying rates at which your money earns interest. Generally, the more money you sock away into savings, the more money you’ll earn in interest.

Most banks offer some form of these three basic savings accounts, with terms differing slightly among them.

Basic savings account

These everyday accounts often yield the lowest interest rate, typically around 0.06%. But they require the lowest minimum balance, which could be just right for new savers unable to maintain the $2,500 daily balance required by other account types.

A basic account likely won’t come with checkwriting privileges, but you’ll have other ways to access your money. The simplest is by linking your savings account to a checking account, which can provide the benefit of overdraft protection for your checking account as well. This means if you try to pay for a purchase that exceeds your checking account’s balance, the overage is automatically withdrawn from your savings, avoiding any overdraft fees.

With these accounts, you’re held to the Federal Reserve’s rule that limits withdrawals to six a month. But you can access your money by making a withdrawal in person at your bank.

High-yield savings accounts

These accounts often come with a higher interest rates when compared with a basic savings account. But they may also require higher minimum deposits or minimum balances. High-yield savings accounts are best suited for long-term savings, where withdrawals are infrequent.
Read up on how to compare high-interest savings accounts

Online savings accounts

An online account can often offer minimal fees and higher interest rates than your basic savings accounts. Many are considered high-yield and do not require a minimum balance.

But many online banks don’t offer the convenience of local branches, meaning you’ll add money to your account through electronic transfers, mobile check deposits and direct deposits.

Next steps for savings

Beyond the three basic types of savings accounts, you have more complex options that can offer higher returns if you meet specified conditions.

Money market account

Not to be mistaken with a money market fund — an investment product that’s not insured by the FDIC — a money market account is a higher-yield savings account. A higher interest rate comes with a higher minimum balance — sometimes as high as $20,000. With money market accounts paying as high as 2% interest, you might not mind that trade-off.

The funds in a money market account are easier to access because these accounts typically come with checks and a debit card. In most cases, checkwriting and ATM withdrawals are excluded from the six-withdrawals limit monthly.

Certificates of deposit

CDs can yield you the highest interest rates of all other options. But they aren’t the type of savings accounts that allow for withdrawals.

With a CD, you agree to keep your money in a bank account for a specified term, typically from a month to three years. The longer the term, the stronger your interest rate. If you withdraw any bit of your money before the end of the term, when it’s considered “matured,” you pay a penalty fee.

Unlike a basic savings account or money market account, a CD does not accrue interest over time. Rather, the interest is paid all at once when the CD matures.

What type is best for me?

Are you… Type Description Features
Young or a student?
  • Basic savings
Every dollar counts at this stage. Whether you’re studying, interning or simply waiting to turn 18, you’ll find a range of accounts designed just for you.
  • Earn interest
  • Pay low or no fees
  • 24/7 access to your money
Saving for a goal?
  • High-yield savings
  • Online savings
  • CDs
Developing a strategy to get to your set goal might be easier than you think. Options like automatic transfers can help. But take note of the interest rate, and understand the features that come with your account.
  • Free transfers
  • Automatic savings plan
Retired or a senior?
  • High-yield savings
  • Money market
  • CDs
Whether you love the convenience of the Internet and prefer to chat up a branch rep face-to-face, banks and credit unions offer a range of options for the older set.
  • Competitive interest rates
  • Pay low or no fees
Teaching children?
  • Basic savings
Learning to save is an important skill for the future, and most parents want to teach their kids to manage money responsibly. Help your child’s savings grow by choosing a starter account.
  • Joint accounts with parents
  • Limited withdrawals
  • Low or no fees
Moving to the US?
  • Basic savings
For work or study, your covered with a wide range of banking options. Look for a standard bank account, like a checking account, for everyday banking needs, and a savings account to grow surplus cash.
  • Multilingual bank staff
  • 24/7 access to your money
Looking for an online account with no fees?
  • Online savings
  • High-yield savings
  • Money market
Fee-free banking puts every dollar you deposit closer to your savings goal. Plus, online accounts typically offer strong interest rates.
  • Low or no fees
  • Higher interest rates

Where can I get a savings account?

Savings account are available through banks, credit unions and online upstarts looking for your business. Before signing up, weigh interest rates to find the highest you’re eligible for, and make sure you know how you can access your money in a pinch.

National banks

Big-brand banks like Chase and Citibank offer consumer and commercial financial products nationwide. They often provide a large suite of services, strong financial stability and a large presence in most cities. The size of these banks allows for competitive rates and easy access to your money, but they may require higher fees and offer less personal service.

Regional banks

Regional banks are smaller financial institutions that operate within a state or region of the US. They generally offer many of the same services as national banks, but with a focus on consumer financial products. And often a personal touch.

Community banks

Community banks are yet smaller institutions that tend to be locally owned and designed to fulfill the needs of businesses and residents in the area. While community banks may not be able to offer the lowest interest rates, they can provide a hands-on approach and more personalized service.

Credit unions

These nonprofit financial institutions exist to serve members and the community. Unlike banks, where your money is used for investments and loans, deposits at credit unions mean you’re a member-owner, giving you the right to vote on decisions that affect your banking. Profits are used to benefit members, meaning that credit unions can offer solid rates and low fees.

Fintech companies

Fintechs offer an innovative approach to savings accounts. They often forgo physical branches and offices in favor of apps and online platforms that give customers convenient access to their money. They tend to extend higher interest rates and lower fees that more traditional institutions, but some also require higher minimum deposits.

Other financial companies

You’ll find insurance companies, stock brokers and other companies looking to flesh out their financial products with savings accounts. This varied crowd offers interest rates, fees and terms that can differ wildly among them.

How do I compare savings accounts?

High or competitive interest rates.

  • Your interest rate is your reward for allowing your bank to lend out your money. Make your money work hard with the highest interest rate you’re eligible for.

Low or no fees.

  • Most banks waive monthly fees on savings account as long as you maintain a minimum balance. If you’re paying a monthly fee with your account, it may be time to explore your options.

Easy to access your money.

  • Accessibility depends on your preferences and personal savings goals. A basic savings account allows you to take out money nearly instantly, while you’ll pay a penalty to withdraw a money from a CD that hasn’t yet matured.

Rewards for consistent savings.

  • If you find your savings balance building up but at a less-than-average rate, it could be time to switch to a high-yield or other account.

Benefits and drawbacks

Pros

  • Keeps your money safe. Most savings accounts are insured by the FDIC for up to $250,000.
  • Budgeting tool. Earn interest on your savings, away from your everyday checking account.
  • Easy access. You can get your hands on your cash much more easily than from a retirement account.

Cons

  • Might require a minimum balance. Some accounts require you to keep a minimum amount in your account daily or monthly to remain fee free.
  • Limited withdrawals. The Federal Reserve limits withdrawals on most savings accounts to six monthly, which could make budgeting hard.

How to apply online

How you’ll apply for a savings account depends on the bank or financial institutions you’re interested in. Generally, you’ll follow a standard series of steps that culminate in a deposit from another account.

  • Provide personal details. Submit your full name and contact information, Social Security number, date of birth and government-issued ID, like your driver’s license or passport.
  • E-sign your agreement. Agree to the terms and conditions and certify your tax status.
  • Verify your identity. The bank may ask you questions about your finances that only you are able to answer.
  • Make your initial deposit. Transfer money into your account from your checking account or with a debit card.

What’s next?

After you’ve narrowed down the savings account that’s right for your needs and budget, get the most out of it with our easy tips.

  • Keep transactions to a minimum. You’re typically limited to six withdrawals a month. If you need access to your money, avoid the limit by withdrawing at a branch or ATM.
  • Set up automatic deposits. Many institutions allow you to make automatic deposits from other accounts, paychecks and more. Choose an amount that works for your finances, and adjust it as your budget and finances change.
  • Consider other accounts. Basic savings accounts are a solid start to building a nest egg. But once you’ve got some money put aside, other options might better help you organize your money and reach your goals, like money market accounts or CDs.
  • Keep an eye on interest and fees. Interest rates and fees change over time, which makes monitoring your account a must.
  • Consider adding family to your account. Maximize your savings by adding a spouse, child or other family member to your account.

Bottom line

Savings accounts are one of many tools you can leverage to reach your financial goals. They include everyday savings accounts offering low fixed interest to high-interest money market accounts that offer limited checks. For each, the earlier you start saving, the more time your money has to grow.

Each type of savings account is designed to serve a different financial need. And with so many options at your disposal, weigh the benefits and drawbacks of each option to find the best fit for you. If you know what features you’re looking for, check out the top 10 lists we’ve put together in our guide to the best savings accounts.

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