Savings accounts are a great place to stash cash for a rainy day, but their benefits and costs vary by bank.
According to , in 2022, the typical American had $8,000 in cash in their bank account. Data from the Federal Reserve System. This is a 30% increase from 2019.
Unlike checking accounts, which typically earn little or no interest, savings accounts allow your money to grow just by sitting there.
However, to maximize your savings, you need to choose the right account. There are several things to consider before opening a savings account.
Understand pricing
Many savings accounts have fees that vary from bank to bank. Common fees to be aware of are:
- Monthly maintenance fee: Some banks charge a monthly fee to keep your account open. Monthly fees vary, but range from $5 to $8, and are more common at banks with physical locations. According to Experian.
- Minimum balance fee: Banks want you to keep more money in your account, so they often charge you a fee if your balance falls below a certain threshold. The minimum balance requirements for traditional savings accounts are: $300 to $500 If you want to avoid fees.
- Inactivity charges: Many financial institutions charge fees if your account becomes dormant, meaning no deposits, withdrawals, or transfers are made for a certain period of time.
- Excess transaction fee: Savings accounts often have transaction limits that prevent you from putting money into them too often. Fees may apply if you exceed your withdrawal limit.
find the best interest rate
One of the main benefits of savings accounts is that they typically offer higher interest rates than checking accounts and allow you to grow your money without risk. However, prices vary widely.
- High Yield Savings Account (HYSA): These accounts pay much higher interest rates than traditional savings accounts, but they don't carry any additional risk. One of the only drawbacks is that most are offered by online banks. That means if you want to go to a physical store, your options may be limited.
- Another thing to note: Interest rates on savings accounts are variable, not fixed, so your interest rate can fluctuate.
- Top high-yield savings accounts currently have an annual percentage yield (APY) of 4.5% or higher. according to bank rate.
- Some banks also offer tiered interest accounts that offer higher interest rates the higher your account balance.
- The national average interest rate for all savings accounts is 0.42%, according to the latest figures. Federal Deposit Insurance Corporation (FDIC).
Know your transfer limits
Many banks and credit unions limit the number of withdrawals you can make from your savings account.
- The Federal Reserve previously limited the number of transfers to savings accounts. 6 times a month However, that cap was lifted in 2020. Banks now have their own rules, and many still restrict transfers and withdrawals from savings accounts.
Other considerations
- Make sure your savings account is: Banks insured by the FDICprotects deposits up to $250,000.
- Think about accessibility and what you'll use your account for. If you need easy access to an ATM, a bank with a physical location makes more sense than an online-only bank.
