How to Choose the Best Savings Account
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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 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.
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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.
Traditional bank
Financial institutions like Bank of America or Citibank are considered traditional banks. Traditional banks have a large network of banks, ATMs, and physical branches.
You can typically find many 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 bank
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, operates 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 than traditional banks. So you want to compare the APY at a traditional bank to an online bank and review the pros and cons accordingly.
Credit union
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 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.
Better banking is here.
- No account fees
- Earn up to 4.50% APY
- Up to 2-day-early-paycheck
- No-fee Overdraft Coverage.
- Do it all in one app.
- Up to $2M of additional FDIC insurance through a network of participating banks.
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 benefit of a savings account with your checking account is your bank will make automatic transfers to cover you so that payments won't bounce, and you won't incur insufficient 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.
APY
When you start saving, you can earn interest on the money you stash away. The interest rates, expressed as APY, vary among banks. You want to look for a high-interest savings account to get the best rate.
Online banks and credit unions tend to have more competitive rates than traditional banks. It’s important to note that the APY rate can change at any time, regardless of which bank you choose. Banks typically follow soon after when the feds cut down interest rates. Of course, that hasn't happened recently so you will get high rates. Still, check out the APY at each bank you’re considering to find the best rates.
Fees
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. Saving money is 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 withdrawal 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, some banks require a minimum deposit of $25 or $100, while others don't have this requirement at all.
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 a bank with no minimum opening deposit. If there is a minimum balance, consider how often you touch 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 focus on why we’re saving. Knowing what you are working toward can help you decide 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 saving 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 develop initial financial goals, like saving $10,000 for emergencies.
Can you open multiple accounts?
Ally Bank, an online bank, allows you to save in “buckets” to meet your 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.
Accessibility
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 that cap you at six monthly withdrawals. However, this limit is currently waived due to the pandemic.
Mobile banking
Many things have moved online, 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 better manage 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 and consumers’ comments about their experience.
FDIC
Many savings accounts are FDIC-insured. FDIC is acronym for 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.
Better banking is here.
- No account fees
- Earn up to 4.50% APY
- Up to 2-day-early-paycheck
- No-fee Overdraft Coverage.
- Do it all in one app.
- Up to $2M of additional FDIC insurance through a network of participating banks.
Best savings accounts
If you’re looking for a savings account, you can review the options from traditional banks, online banks, and credit unions. Below, we’ve listed 10 of the best savings accounts, in no particular order.
Varo
Varo offers a high-yield savings account with an APY of up to 3.00% - 5.00%. 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
Ally Bank is a savings account option with no fees and minimum balance requirements. The APY is 4.20%, and you can save in different “buckets” to stash cash for various financial goals.
Capital One
Another option is 360 Performance Savings by Capital One. This savings account has no fees, minimum balance requirements, or deposits to open an account. The APY is 4.25%.
American Express
American Express offers a high-yield savings account that earns 4.25%. There are no minimums or monthly fees, and customer service is available 24/7. 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 and unlimited withdrawals.
You don’t need a minimum deposit to open an account, and their APY is 4.40%. One great perk is that there are same-day transfers between accounts.
Discover Bank
Discover Bank has an online high-yield savings account with zero fees and no minimum deposit. That means you can avoid minimum balance requirements and get started with saving immediately. According to their site, you can earn an APY of 4.25%.
Barclays
Barclays has online savings account with 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 APY is 4.35%.
CIT Bank
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 with rates as high as 4.65%.
Better banking is here.
- No account fees
- Earn up to 4.50% APY
- Up to 2-day-early-paycheck
- No-fee Overdraft Coverage.
- Do it all in one app.
- Up to $2M of additional FDIC insurance through a network of participating banks.
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.
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Writer
Melanie Lockert is the founder of the blog and author of the book, Dear Debt. Through her blog, she chronicled her journey out of $81,000 in student loan debt. Her work has appeared on Business Insider, VICE, Allure and more. Melanie writes about student loans, credit, and mental health and also is the host of The Mental Health and Wealth Show podcast.
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