What to look for in a savings account

Quick insights

• Features of savings accounts vary by type of account, with interest rates, fees and account accessibility as potential differentiators.
• Many savings accounts are designed with a specific purpose in mind, so be sure to consider your savings priorities when making a decision.
• The most important criteria when selecting a savings account will depend on your savings goals, preferences and habits.

Saving money for the future is an important and optimistic part of a conscientious financial life. The ability to save money over time can set you up for financial success, including opportunities such as buying a home or seeking higher education. Having savings can also reinforce your overall financial stability, helping you meet unexpected challenges with greater confidence.

The varied offerings of different savings accounts can make a big difference in how they can be used, so it’s important to choose an account that suits your needs. In this article, we’ll discuss what to look for when opening a savings account, including features of saving accounts that support specific financial goals and preferences.

Key factors and features of savings accounts

Because the main purpose of a savings account is to set money aside for later, an account that helps you grow your money and keep it safe is ideal. When making an account selection, you should consider the interest rate of the account, account fees, balance minimums, insurance provided and support features.

Interest rates

Unlike checking accounts, most savings accounts provide interest on your balance. Interest (or APY, Annual Percentage Yield) is money that the bank pays you just for keeping funds in the account. At most banks and credit unions, the APY offered for savings products is considered variable and is adjusted in relation to the current prime rate. Rates can vary widely depending on the institution, the type of savings product and your location. For some accounts, the amount of interest offered increases with the account balance.

Initial deposit and balance requirements

Many savings accounts require an initial deposit or minimum balance. In some cases, you may need to deposit between $25 and $100 as an initial deposit. Certain savings accounts also require you to maintain a minimum balance, which can generally range from $100 to $5,000. Balance requirements tend to be higher for accounts that offer high interest rates or other special features. Some accounts have neither requirement, which may be a perk for someone who is just starting to save.

Savings account fees

Savings accounts often have usage fees associated with different banking activities (or a lack of activity). These could include low balance fees, maintenance fees, ATM fees or inactivity fees. While it could be easy for some savers to avoid such fees with how they use the account, others may bump up against them due to their financial habits. Many accounts advertise low or no fees, which may be helpful depending on the way you plan to interact with the account. Be sure to read all account disclosures and rates for the most complete information regarding fees.

Institutional stability and insurance

Determining a home for your savings should include researching the institution itself for stability. It’s important to choose a savings account at a bank or credit union that has a solid reputation and will stand the test of time to protect your assets. Most reputable institutions offer accounts with either FDIC or NCUA insurance. These federally backed insurances guarantee your deposits to at least $250,000 in the event of institutional failure.FDIC-Deposit-Insurance

Account accessibility

It’s prudent that the account you choose has ways to make deposits, withdrawals and balance inquiries that work for you. Potential features of a savings account to look for include the prevalence of online banking, mobile banking apps and ATMs. Depending on your preferences, you may want to choose an institution that has branch locations you can visit in person to manage your account.

Other perks and considerations

Some individuals will benefit from opening a savings account at a bank or credit union with other complementary products—such as checking accounts, investment accounts or lines of credit—which can integrate to form more holistic financial management. For others, broad customer service availability may be a priority. Finally, it’s worth keeping an eye out for sign-up bonuses or other kinds of promotions for savings accounts.

Types of savings accounts

As you work to narrow down which savings account is best for you, you’ll find that different accounts cater to different priorities. In fact, the functionality and features of a savings account can vary greatly depending on type.

• Traditional savings accounts: Offered by all major banks, traditional savings accounts generally provide modest interest with the benefit of brick-and-mortar branch locations, personal assistance and a suite of complementary banking products. These straight-forward accounts are suitable for both short- and long-term savings goals.
• High-yield savings accounts: As the name suggests, high-yield savings accounts provide significantly more interest than traditional savings accounts. They are frequently offered by online banks and managed electronically with a low amount of personal support. Fees and ATMs are also likely to be limited with this option.
• CD accounts: Certificate of deposit accounts (CDs) allow you to park your money and grow it for a predetermined amount of time. The APY offered by these accounts tends to be higher, with the agreement that the account holder cannot access these funds early without paying a fee. Once the term is up, you will need to move your money to a new CD or renew your current account to continue earning.
• Specialty savings accounts: There are many accounts which are designed for specific purposes, including accounts for children, students and healthcare savings. Specialized accounts often provide tax benefits that are aligned with certain savings goals, such as investment plans for college savings, and Flexible Spending Accounts (FSAs) or Health Savings Accounts (HSAs) for medical expenses.

How to choose a savings account

After familiarizing yourself with the types of savings accounts and features available, check back in with your savings goals and preferences. Guide your selection process with questions like:

• Am I saving for the short or long-term?
• How much am I able to deposit today?
• Will I need to access these savings in an emergency?
• Do I have multiple savings goals that require different treatments?

Use these answers to evaluate the savings accounts available to you. Many people choose to open more than one savings account to save toward different goals and benefit from different features. For example, you may decide to place your emergency fund in an account with no withdrawal fees, and to keep your deep savings in a CD that earns more interest.

Bottom line

Choosing the right savings account (or accounts) for your goals can help you be prepared to manage important occasions in the future, such as attending college, covering an unplanned expense, buying a home or retiring. By doing your due diligence to research different options and determine your financial priorities, you can put yourself in a good position to choose a savings account that’s right for you.