Categories
Saving Accounts

Savings Account Interest Rates

A savings account is a good place to keep money safe and liquid, but it’s not a great place to earn money, right? Not necessarily. Some banks and credit unions offer savings accounts with respectable interest rates that rival the rates earned with CDs—but without the restrictions.   

We review more than 150 banks and credit unions every weekday to find the best savings rates and deals. These high-interest savings accounts are available to customers nationwide, and your funds are federally insured up to $250,000 per depositor per institution. We start by finding the highest rates, and we favor accounts with low minimum deposit requirements and friendly fee structures.

We also include money market accounts if they function like savings accounts. That means if an account pays a high yield and doesn’t allow you to write checks, it’s in the mix.

We evaluate savings accounts that are widely available throughout the U.S. to identify the best high-interest savings accounts. For this round-up, we primarily look at the annual percentage yield (APY) offered, but to help you compare options, we also consider factors like how quickly interest compounds, how easily you can make deposits, and customer service availability.

APYs are changing rapidly amid widespread uncertainty about the economy and financial markets. The Balance is monitoring rates and updating them accordingly.

Best High-Yield Savings Accounts

Bank or Credit UnionAPYRequirements
Sallie Mae Bank1.10% on the first $2,500$0 to open and up to $2,500 to earn stated APY; up to $10,000 to earn 1.00%; up to $50,000 to earn 0.80%; over $50,000 to earn 0.70%
Customers Bank1.10%$25,000 to open and earn stated APY
Fitness Bank1.05%$100 to open, earn stated APY, and avoid $10 monthly fee; must also average at least 12,500 steps daily
Affirm1.00%$0 to open and earn stated APY
Chime1.00%$0 to open and earn stated APY
First Foundation Bank1.00%$1,000 to open and $0 earn stated APY
Citi0.90%$0 to open and earn stated APY but $500 to avoid $4.50 monthly fee; APY may not be available in all locations
Nationwide by Axos0.90%$100 to open and $0 earn stated APY
Virtual Bank0.80%$100 to open and avoid $5 monthly fee but $0 to earn stated APY
Axos0.90%$250 to open and $0 to earn stated APY

We partnered with the following banks to bring you the savings account offers in the table below. Under that, you’ll find additional details on our editors’ picks for the best high-interest savings accounts and rates as of September 8, 2020. All of the banks and credit unions listed are insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA).

Sallie Mae SmartyPig Savings

SmartyPig is an online savings account offered through Sallie Mae Bank. The innovative account lets you create and track savings goals and requires no minimum deposit or ongoing balance. Competitive interest rates help you grow your money even faster. You’ll earn the highest interest rate on deposits up to $2,500; rates decrease as you deposit more. Interest is compounded daily and credited monthly.What We Like

  • No balance requirements or monthly fees
  • You can set up and save for individual goals

What We Don’t Like

  • No other account offerings but the savings account
  • Tiered interest rate structure that offers lower rates on higher balances

Customers Bank Ascent Money Market Savings Account

Customers Bank was formed in 2009. Its personal account offerings include checking, savings, and money market accounts, as well as loans. The Money Market Savings Account is available online (but not in Alaska, Arizona, Hawaii, or New Mexico), and with no monthly fees. But the account requires at least $25,000 to open, and you stop earning interest if your balance drops below that amount. Interest compounds and is credited monthly.What We Like

  • Competitive rates with no monthly fees

What We Don’t Like

  • No interest earnings if your balance falls below $25,000
  • Lower minimums available elsewhere

FitnessBank Fitness Savings

FitnessBank is an online division of Newton Federal Bank that rewards you based on your fitness activity. You’ll earn the max APY if you log an average of at least 12,500 steps daily with your Fitbit, Apple Health, Garmin, or Google Play fitness tracker. Lower rates are available with lower activity levels, and you must open the FitnessBank app at least monthly to log your steps. The account requires a minimum of $100 to open, and you must maintain at least that much as an average daily balance to avoid a $10 monthly maintenance charge. Interest compounds daily and is credited monthly.What We Like

  • Decent interest even if you don’t hit 12,500 steps daily
  • Seniors can earn the top APY with fewer steps

What We Don’t Like

  • Mobile app doesn’t include deposit feature

Affirm Savings

Founded in 2012, Affirm is a fintech company known primarily for issuing point-of-sale loans for retail purchases through Cross River Bank. However, it also offers a high-yield savings account that comes with a companion mobile app and no minimum deposit or monthly fees. Interest is compounded daily and credited monthly.What We Like

  • No minimum opening deposit or ongoing balance requirements
  • Great for mobile-centric users

What We Don’t Like

  • Account only accessible via the mobile app

Chime High-Yield Savings

Chime is a neobank that offers banking services through The Bancorp Bank or Stride Bank, N.A. These include the flagship Chime spending account along with a secured credit card and a savings account. The fee-free savings account requires no minimum opening deposit or minimum balance. Interest on the account compounds daily and is credited monthly.What We Like

  • No minimum opening deposit or ongoing balance requirements
  • You can automatically divert 10% of direct deposits over $500 to your Chime spending account

What We Don’t Like

  • Not suitable for those who need a more robust suite of banking services

First Foundation Bank Online Savings

First Foundation Bank was founded in 1990 and has branches in California, Nevada, and Hawaii. The online savings account at First Foundation Bank pays its customers the highest APY on balances up to $5 million, and there are no monthly fees. To open an account, however, you must start with $1,000 in new money.

First Foundation Bank also offers checking accounts and other products, but those are only available in the three states mentioned (the savings account is available nationwide). Interest compounds daily and is credited monthly.What We Like

  • No monthly fees, even if your account balance dwindles

What We Don’t Like

  • Limited offerings unless you live in select states

Citi Accelerate Savings

Citi is a global financial services powerhouse that traces its roots back to the War of 1812 (when it was City Bank of New York). Today it offers banking services to businesses and individuals—including savings accounts. Big, well-funded banks like Citi don’t often offer rates on par with offerings from regional banks and credit unions. This account offers a competitive APY with no minimum deposit, although you’ll have to keep at least $500 in the account to avoid a $4.50 monthly fee. Interest is compounded daily and credited monthly.What We Like

  • No minimum deposit
  • Linking your savings account to another Citi account earns extra Citi rewards points

What We Don’t Like

  • Monthly fee if account balance falls below $500
  • Ability to earn more interest at other banks

Nationwide by Axos My Savings

Operating for over 90 years, Nationwide is one of the largest insurance and financial services companies in the world. It offers checking and saving accounts as well as loans through Axos Bank—itself an award-winning online bank founded in 2000. The savings account comes with a $100 minimum deposit and no ongoing balance requirement to earn its interest rate. Interest is compounded daily and credited monthly.What We Like

  • No balance requirements or monthly fees
  • A host of digital banking tools, including a mobile app
  • Robust security features

What We Don’t Like

  • Ability to earn similar or more interest at other banks

VirtualBank eMoney Market Account

VirtualBank is a division of IBERIABANK, a commercial bank founded in New Iberia, Louisiana in 1887. You can currently open eCDs along with the eMoney Market account online, both of which come with free online and mobile banking. You’ll need to deposit $100 to open the money market account, which you’ll also need to maintain to avoid a monthly fee. Interest on the account is compounded and credited monthly.What We Like

  • Mobile account tools, including deposits
  • Website offers various calculators to track the growth of your deposits

What We Don’t Like

  • Monthly fee if your daily balance drops below a certain amount

Axos Bank High Yield Savings

Axos Bank is an award-winning online bank that offers checking and savings accounts, CDs, and home loans. Its savings account offers that attractive combination of no ongoing balance requirement or monthly fees. You’ll only have to make a $250 deposit to open the account and start to see your savings grow. Interest is compounded daily and credited monthly.What We Like

  • No balance requirements or monthly fees
  • Free ATM card on request

What We Don’t Like

  • You can earn similar rates with no opening deposit

What Is a High-Interest Savings Account?

A high-interest savings account, also known as a high-yield savings account, helps you grow your money while keeping it accessible. Savings accounts often pay interest on your deposits, but interest rates vary from bank to bank. What makes high-interest accounts unique is a relatively high rate on your balance: They may pay several times more than the national average, which multiplies your earnings.1

As you earn interest on your savings, you can leave the money in your account and allow the funds to compound. Put another way, you earn interest on the interest payments you received in previous months. The higher your rate, the faster your money grows.

What Should You Look for in a High-Yield Savings Account?

The interest rate is the feature that most people pay attention to when shopping for a high-yield savings account. Compare banks and pick a competitive rate, but don’t ignore other critical features.

  • Low fees are crucial: If you’re paying monthly maintenance fees, you might wipe out any earnings in your account (or even see your account balance fall each month).
  • Verify that your money will be safe: Banks should be FDIC-insured, and the safest credit unions provide NCUSIF coverage.
  • Select a bank that will be convenient to work with. Evaluate how you’ll use the account, and find a bank that fits your needs. For example, if you want to deposit checks frequently, make sure the bank offers mobile deposit. If you withdraw cash regularly, choose a bank with a convenient ATM network or ATM rebates.

Why Do Savings Account Rates Change?

The interest rate on your savings account changes over time. In some cases, the rate remains the same over extended periods. But when rates in the broad economy change, banks typically move in sync with those changes. If the Fed cuts rates, there’s a good chance that your savings account rates will remain stagnant or fall. When rates rise, banks tend to increase rates, but not necessarily as quickly as you’d like.

CDs enable you to lock in a rate that doesn’t change, but there are pros and cons of using CDs.

Why Are Some Bank Interest Rates Higher Than Others?

How much interest you earn can vary quite a bit, but interest rates tend to be lower at big brick-and-mortar banks and higher at online banks.

Banks raise rates when they want to gather money. If they need to get deposits in the door, a high rate on savings accounts attracts customers. If, on the other hand, they don’t need cash, they can keep rates lower.

Banks have different approaches to earning money. Some take deposits and lend them out, while others take a more varied approach (earning revenue and fees from other services like credit cards and ancillary business).

Organizational structure is also important. Some banks have shareholders demanding that the bank grow (and/or share income with the shareholders), and those demands may make it harder to pay high rates to depositors. However, some banks are able to keep only what they need to pay the bills and share the rest of the revenue (from loans, ATM fees, etc.) with account holders. Small banks and credit unions are most likely to fit the latter model.

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Saving Accounts

Banks for Savings Accounts

Savings accounts are an essential part of your finances. But the best banks for savings accounts allow you to do more than park your money somewhere safe—they also allow you to earn a decent amount of interest on your balance. Choosing the right account helps you grow your savings and avoid fees, maximizing the amount you have for spending.

So, where should you open an account? Lots of banks have excellent savings accounts, and we’ve highlighted some of the best offerings below. The banks on this list pay competitive annual percentage yields (APYs), keep fees low, and provide FDIC insurance on your deposits.

Best Banks for Savings Accounts of September 2020

BankWhy We Picked ItAPYMinimum Initial Deposit to Open
DiscoverBest for All-in-One Banking0.80%$0
SmartyPigBest for High Rates1.10% for the first $2,500$0
Customers BankRunner-Up for High Rates1.10%$25,000
Live Oak BankBest for Business Accounts0.80%$100
Alliant Credit UnionBest for Kids and Teens0.65%$5
SimpleBest for Managing Your Finances0.80%$0
AllyBest for Customer Service0.80%$0

We partnered with the following banks to bring you the savings account offers in the table below. Under that, you’ll find additional details on our editors’ picks for the best savings accounts and why we chose them. All of the banks and credit unions listed are insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA). We also include some money market accounts if they act like savings accounts—in other words, if they pay a high yield and don’t allow you to write checks.

Discover Bank: Best for All-in-One Banking

Discover Bank offers a wide variety of accounts, including an Online Savings Account that pays 0.80% APY.1 There’s no minimum deposit required, and you pay no monthly fees with that account. In fact, the only fee you should pay is an outgoing wire fee, if you choose to wire money. Official checks, returned deposits, and excess withdrawals are all fee-free, too.

While you can potentially earn more elsewhere, higher rates really only matter when you have a substantial account balance. If you don’t keep a large amount in your savings account, you might prefer having access to a robust set of features.

Discover has a lot more than a good savings account. Its Cashback Debit account provides a rare opportunity to earn rewards on debit card spending, and its money market and CD accounts have competitive rates, too. Discover also offers credit cards, free FICO credit scores, home equity loans, personal loans, and other financial services.

SmartyPig: Best for High Rates

SmartyPig has just one product: an online savings account offered through Sallie Mae Bank. The innovative account lets you create and track savings goals and requires no minimum deposit or ongoing balance. Competitive interest rates help you grow your money even faster. You’ll earn the highest interest rate on deposits up to $2,500, but rates go down as you deposit more—something to keep in mind if your nest egg is growing. Interest is compounded daily and credited monthly.

Customers Bank: Runner-Up for High Rates

The Ascent Money Market account from Customers Bank pays a high rate and charges no monthly fees.2 However, you need to open the account with at least $25,000, and you must keep your balance above that level to earn interest (you earn nothing with less than $25,000). There are no caps on your account balance, so you can potentially earn a substantial amount of interest.

Although the bank calls this account a money market account, you cannot write checks or spend from your balance with a debit card, so it’s similar to a standard savings account. Customers Bank, with $17.9 billion in assets, has locations along the I-95 corridor and in Chicago, but this account is only available online.3

Live Oak Bank: Best for Business Accounts

Live Oak Bank pays your business 0.80% APY in an easy-to-understand online bank account.4 There are no monthly fees, and there’s no minimum balance requirement to open an account or keep an ongoing relationship with Live Oak Bank. You cannot deposit cash, but you can fund your account with electronic transfers, paper checks, deposits with your mobile device. Live Oak Bank, founded in 2008, also offers personal savings accounts, CDs, and other banking services.5

Alliant Credit Union: Best for Kids & Teens

Alliant Credit Union caters to young people of all ages, and those aged 13 years or older can use a standard Alliance savings account. Rates are quite good at 0.75% APY, though there may be higher rates out there.6 7 These accounts require $5 to get started (though Alliant will pay it for kids 12 and younger), $100 to earn the stated APY, and there are no monthly fees.

Alliant also has a teen checking account, which earns 0.25% APY—pretty good when you consider most banks don’t offer interest checking.8 The account has no minimum balance or monthly service fee, and the credit union reimburses up to $20 of out-of-network ATM fees per month. To be eligible for these accounts, you may need to join Foster Care to Success, and Alliant pays the membership fee for you.9 Parents who are joint account holders of minor accounts must also be Alliant members.

This is an excellent way to teach children about money. They can see how interest helps their account grow, and they can practice saving for specific goals while watching their progress.

Simple: Best for Managing Your Finances

Simple lives up to its name by providing the essential features you need to manage your money on a day-to-day basis. Simple is not strictly a savings account, but you can earn up to 1.00% APY on the money in your high-yield account, and there’s no minimum balance required to earn that rate.10 Simple actually isn’t a bank, but accounts are FDIC insured through its partnership with BBVA.11

What makes Simple stand out is the built-in money management tools. This account is designed to help you manage your spending to reach specific goals. After you create spending categories and financial goals, you allocate a set amount each month to each category. Also known as zero-sum budgeting, this approach ensures that every dollar in your budget has a job and that you treat saving like a required expense.

Ally Bank: Best for Customer Service

There’s nothing worse than dealing with bank errors and trying to get access to cash when you need it. Ally Bank ranked in the top five of the J.D. Power 2020 Direct Banking Satisfaction Study, and the bank has competitive rates, as well.12 Ally Bank pays 0.80% APY with no minimum balance requirement and no monthly fees.13 Schwab Bank and E*TRADE Bank earned higher scores from J.D. Power, but they pay substantially less than Ally Bank.14 15

Customer service at Ally is available by phone 24/7, and the bank displays an estimated wait time online so you know what to expect. You can also use Ally for online checking, CDs, and more.

What Is a Savings Account?

​Savings accounts give customers the flexibility to deposit money, earn interest, and withdraw funds as needed. They also keep money safe—savings accounts are federally insured, which means that the government covers up to $250,000 if your bank fails.

Should You Get an Online Savings Account?

Online savings accounts provide flexibility and security, with additional advantages over traditional brick-and-mortar banks and credit unions. For starters, customers can manage money via smartphone or computer without depending on local branch hours and tellers. But most notably, they tend to offer higher rates and lower fees.  

Are Online Banks Safe?

Online bank accounts can be as safe as brick-and-mortar accounts. That’s true for deposit insurance and other forms of security. The most popular banks (including those listed here) benefit from FDIC insurance (for banks) or NCUSIF coverage (for credit unions) up to $250,000 per depositor, per account. When banking online, you might face unique risks associated with cybersecurity—but your brick-and-mortar accounts are probably online as well.

Here’s how to reduce risk:

  • Keep your browser and mobile apps up-to-date.
  • Use caution when clicking on links—or avoid clicking any links in email altogether.
  • Use a strong, unique password, and store your passwords securely.
  • Never respond to email, phone, or text message requests for your personal information or password.
  • Use two-factor authentication to make it harder for thieves to log into your accounts.

If you notice any signs of fraud, contact your bank immediately. You may be protected from fraud and errors in your account, but you need to act quickly for the highest levels of protection. Banks also monitor your accounts and employ sophisticated analytics to help detect fraud, regardless of whether you bank online or in a branch.

What Makes a Good Savings Account?

  • The interest rate: A competitive rate is helpful, and if you’re intent on getting the best interest rate, check out our list of the best savings account rates. But for many people, rate is not necessarily the most important thing. The interest you earn becomes increasingly important as your account balance grows. But if you keep a relatively small amount in savings, it’s potentially more important to select accounts that do not charge fees and make it easy to add to your savings.
  • No monthly fees: This is crucial, especially as you’re getting started. Monthly fees can wipe out any interest you earn and even cause your account balance to fall each month.
  • Deposit insurance: Verify that your funds are protected from bank failures. FDIC insurance and NCUSIF coverage are equally safe, so don’t be afraid to work with federally-insured credit unions.
  • Electronic transfers: The best accounts make it easy to move money in and out of savings. Setting up direct deposit from your employer helps to automate your savings and avoid temptation. Quick, free transfers by ACH help you keep your money in savings and earn interest for as long as possible before you need to take withdrawals.
  • Mobile deposit: If you receive paper checks, be sure your bank allows you to deposit checks with your mobile device. Doing so saves you time, as you can avoid trips to a branch and time preparing a deposit by mail. Plus, you can speed up deposits and start earning interest as soon as possible.

Can I Have More Than One Savings Account?

Yes, you can open as many savings accounts as you want. Multiple savings accounts can help you separate money for certain goals, stay below deposit insurance limits, or move your money where it serves you best. However, it might not make sense to keep multiple accounts if you have to pay fees for each account. Also, keeping track of numerous accounts can cause confusion, but there’s nothing wrong with having a manageable number of savings accounts.

What’s the Difference Between Savings Accounts, Money Market Account, and CDs?

Money market accounts and CDs are similar to savings accounts. But there are some important differences.

While money market accounts pay interest like savings accounts, they typically offer check-writing and debit card options. You can see what these kinds of accounts have to offer on our round-up of the best money market accounts and rates.

Savings accounts and money market accounts also differ in the ways banks and credit unions use your deposit. Money market deposits can be used to invest in certificates of deposit (CDs), while savings account deposits can only be used to make loans.

CDs offer higher rates than savings accounts, but require you to keep your savings in the bank for months or years. Time commitments vary, but you might have to pay a penalty if you take out your money early.

Key Terms to Know

Interest: The amount your bank pays you based on your account balance. This is typically expressed as an annual rate, but may be paid monthly. For example, if your bank pays a 1.20% annual interest rate, you would receive 0.1% per month. On a balance of $100, that translates to $1.20 per year, although the amount could be higher due to compounding.

Compounding: When you earn interest in a savings account, you might leave those interest earnings in the account. Your bank adds money to your account, and that new money generates additional interest earnings. In other words, you earn interest on the interest you previously earned. That process, known as compounding (or earning compound interest), helps your account balance grow at an increasing rate.

Annual percentage yield (APY): APY is the amount you earn on your savings when you take compounding into account. If your bank pays interest more often than yearly (banks often calculate interest daily), you earn more than the stated annual interest rate. That higher amount, known as the APY, is a more accurate way of understanding how much banks pay.

Excess withdrawals: Savings accounts are designed to hold your funds for extended periods. You can withdraw money occasionally, but frequent withdrawals may be problematic. Financial institutions usually limit certain types of withdrawals to no more than six per month. When your withdrawals exceed those maximums, you may have to pay fees, and your bank might close your account if you make a habit of it.

Minimum balance: As you compare accounts, note any minimums (some banks do not set minimum balance requirements). You may see several different types:

  1. Minimum initial deposit: The amount you need to deposit to open an account. Unless you meet that requirement, you can’t open an account.
  2. Minimum to earn interest: Banks may pay different rates at different levels. Pay attention to how much you need to keep in your account to earn the highest rates.
  3. Minimum to avoid fees: You may be able to prevent monthly fees in your account by keeping your balance above a certain level. 
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Saving Accounts

Alternatives to the Basic Savings Account

While many people head to their local bank when it comes time to open a savings account, it’s likely that the rates you find there will be relatively low. To get the best possible rate, you might consider something different than a basic savings account.

Online savings accounts

Online-only accounts are a great option for higher earnings and lower fees. Online banks don’t have the same overhead costs as brick-and-mortar banks.

The result is that many of the highest-yield savings accounts can be found at online banks. Many online banks allow you to get started with no minimum deposit, though some of the higher-yielding accounts require larger deposits.12 13

Despite being online banks with no physical branches, you’ll often get an ATM card for withdrawing cash. You also can transfer funds to (or from) your local bank or credit union electronically in about three business days. To add money, you can deposit checks with your mobile device.

Money market accounts

Similar to savings accounts, money market accounts pay interest on your deposits and limit how often you can make certain transfers.14

However, they typically pay more than savings accounts, and it’s easier to spend your money. If you are interested in comparing accounts, check out the best money market rates. 

These accounts usually provide a payment card or checkbook you can use for spending up to three times each month, so they’re useful for emergency savings or large, infrequent payments.

Certificates of deposit (CDs)

If you can commit to leaving your savings untouched for at least six months, you might be able to earn more in a CD. These accounts come with varying time commitments, but you may have to pay a penalty if you cash out early.15

Some CDs are flexible, offering penalty-free early withdrawals, but the flexibility often comes with a slightly lower rate.

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Saving Accounts

Access Money From Your Savings

To use your money, you’ll often need to move funds out of a savings account. In most cases, it’ll go to a checking account, and you can write a check, use online bill payment, or use your debit card for spending. But there are several ways to use money from savings.

  • Withdraw cash: If you want physical cash, you can get funds from an ATM. You can make unlimited withdrawals from ATMs or in person with a teller.
  • Transfer to checking (internal): Moving money to a checking account in the same bank is fast and easy. Just contact customer service or make the transfer using your bank’s app or website.
  • Electronic transfer (bank to bank): It’s also easy to move funds to a different bank, but the process can take several business days unless you wire the money for an additional fee.
  • Request a check: In some situations, it might be easiest to have your bank print a check using funds from your savings account. For example, when making a down payment on a house, your bank can create a cashier’s check payable to a title company or seller.
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Saving Accounts

How to Add Funds to Your Account

When it comes time to contribute money to your savings account, you take one of the following steps:

  • Deposit cash: A traditional way to make deposits is to bring cash to a bank or credit union branch. You also can make deposits at some ATMs, allowing you to deposit cash outside of banking hours or at a location that’s more convenient for you.
  • Deposit checks: You can deposit checks directly into a savings account. When you make the deposit, just put your savings account number on the deposit slip. With most banks, it’s also possible to deposit checks with your mobile device—so you don’t need to go anywhere near a branch or ATM. Funds will be available in a day or longer, depending on your bank’s policies.
  • Transfer from checking (internal): If you have a checking account, moving money from checking to savings within the same bank is easy, and it’s often instant. Just use your bank’s app, website, or customer service line to make the move. Get that money out of checking so that you know that it’s reserved for something else.
  • Electronic transfer (bank to bank): You also can make electronic deposits to a savings account from another bank. For example, link your local brick-and-mortar account to an online account that pays more or allows you to set up subaccounts to help you save for goals.
  • Direct deposit: If your employer pays by direct deposit, ask if you can have your payments split so that some of it goes directly to a savings account. That money will never hit your checking account, so you’ll save without even trying.
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Saving Accounts

Multiple Savings Accounts

Some people like to maintain more than one savings account, assigning different purposes to each one. For example, you might have a savings account designated for Christmas.

By contributing a little bit at a time throughout the year, holiday expenses might be less of a burden. As another example, you might be saving for a major purchase like a down payment on your first house.

There are many reasons to have multiple savings accounts, and as long as the accounts don’t come with fees that strip away your interest earnings, you should go this route if it is the best way for you to manage your savings.

The primary benefit to multiple savings accounts is the ability to keep tabs on how much money you have for specific purposes. With dedicated savings accounts, tracking your progress is easier.

The primary drawbacks are potential fees and the possibility that managing multiple accounts might be burdensome. Many online savings accounts, though, offer good rates with low minimum balances that allow you to avoid fees. With applicable online banking apps, it’s very easy to move money from one account to another.

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Saving Accounts

Using Your Savings Account

A savings account is a good place to keep money safe for future needs. Savings accounts are particularly useful for the money you may need within the next few years. You might not earn much in savings, but as long as your funds are federally insured and you’re fee-conscious, you’re not going to lose that money either.

Some common uses of savings accounts are as follows:

  • Saving for major purchases: If you’re planning to buy a house or a car within the next few years, you’ll probably need a down payment to qualify for a loan—and get the best terms. A savings account is a good place to build and store that down payment while you’re getting ready to buy.
  • Vacations or other upcoming expenses: You’ll enjoy your vacation even more if you’re not going into debt and you have sufficient funds to pay for all of that fun. Build up a vacation fund in a savings account by transferring money from your earnings every month. By getting that money out of your checking account, you won’t be tempted to spend it.
  • Emergency savings: Life always manages to surprise us. An emergency fund can help you avoid taking on toxic debt. Funds in a savings account are generally accessible without any penalty, so you can take care of issues quickly.
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Saving Accounts

Savings Account Costs and Limitations

While savings accounts typically are free, there are limitations and potential costs. Accounts generally have minimum balances they require you to maintain.

Banks often will charge a monthly fee, an annual fee, or both if you do not maintain this minimum balance. The fees will be withdrawn from your account, so there is a possibility you also could be charged overdraft fees if the account balance goes below zero.7

Credit unions don’t charge fees the same way banks do. Instead, most put a hold on a specified dollar amount that you must deposit when you open your account. For example, if the amount being held is $25, you’ll need to deposit that money to start your account, and you won’t have access to it for as long as your account is open.

When you close the account, you’ll get that money back. Credit unions may charge overdraft fees and require minimum balances for their accounts. Because their requirements vary, you must check with one of their representatives to verify.8 9

Some banks or credit unions will charge no fees for a savings account if you also have another account with that institution.10 For example, opening a checking account may give you access to a savings account with no additional fees, but if you close your checking account while keeping the savings account, the fee structure likely will change.

Because savings accounts are designed for savings, there also is a limit to the number of withdrawals that can be made. The Federal Reserve sets this number at six, as of 2020.11

If you make more withdrawals than this, the bank likely will change your account to a checking account or another similar transaction account, which may come with a different fee structure.11

Check with your individual bank to see how they address this.

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Saving Accounts

How Savings Accounts Work

It’s generally wise to have a savings account, and they’re mostly free—especially at online banks, community banks, and credit unions.

Keeping cash elsewhere that you don’t plan to spend in the immediate future is unsafe, and using a savings account has a psychological benefit: It’s tempting to spend money in hand. A savings account, however, can be a means of setting aside funds to reach longer-term goals.

Safety

A savings account holds your money in a safe place: your bank or credit union.

Cash that’s outside of the bank can get stolen or damaged in a fire. But when the federal government insures your savings, you avoid the risk of losing money if your bank or credit union fails. Banks are covered by FDIC insurance, and credit unions are covered by NCUSIF insurance.3 4 Savings accounts at credit unions often are called share accounts.

Savings accounts offer easy access to your cash. Once you’re ready to spend money, you can withdraw cash or transfer funds to your checking account to pay by check, debit card, or an electronic funds transfer. You can make cash withdrawals from your savings account at an ATM or with your bank’s tellers.

Growth

Savings accounts pay interest on money in your account.2 As a result, your bank will make small additions to your account, typically every month. The interest rate depends on economic conditions and your bank’s desire to compete with other banks.

Savings account rates are generally not very high and may not even match inflation, but your risk of loss is virtually nonexistent when your funds are federally insured. A little bit of interest is better than nothing, which typically is what you’ll get from a checking account.

To compare savings accounts, you’ll want to look at the annual percentage rate (APY) paid on the account, as well as details like minimum deposit amounts, fees, and other features.

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Saving Accounts

How to Open a Savings Account

Opening a savings account should take less than an hour (sometimes just a few minutes), and the account will serve you for many years to come. The easiest way to open an account is to do it online or with your mobile device. If you prefer in-person guidance, visit a bank branch.

  1. Compare banks by reviewing interest rates, fees, minimum balance requirements, and other
  2. If you’re considering credit unions, verify that you’re eligible to join.5 Look for that information online, or call the credit union and ask about opening an account.
  3. Choose the bank or credit union that meets your needs. Get an account that’s easy to use and that you’ll actually put money into, whether that means the branch is conveniently located or the mobile app makes sense to you. A slightly higher savings rate is not critical unless you’re going to make large deposits.
  4. Gather the information you need to open an account: government-issued identification (a driver’s license number, military ID, or other ID), your Social Security number, and a mailing address.
  5. Open an account online or in person by submitting an application.
  6. Fund the account with an initial deposit if required.

To open an account, at least one account holder needs to be 18 years old or older.6 Specifics vary from bank to bank, so ask customer service for details if you’re opening an account for a minor. Several options are available for saving money for a person younger than 18, so evaluate all of the options.

Talk to the staff at small banks and credit unions if you have significant assets. Ask what they can offer if you bring your deposits to them.

The institution’s president may be just down the hall, and you may get a nice offer on the spot. Consider how long you can lock up your assets and ask what they can offer for a 12- or 36-month commitment.

If you find yourself looking at institutions you’re not familiar with, be sure that they’re FDIC insured, or NCUSIF insured if it’s a credit union.