We’ve come a long way from the days of hurrying to deposit paychecks at our local bank before it closes. So many banking transactions are now just a smartphone and an internet connection away. But modern banking isn’t without its challenges.
With so many institutions competing for our attention, it’s easy to feel paralyzed sifting through all the choices. Even deciding which factors are most important can feel overwhelming. But if you focus on the following five things, you can’t go wrong.
1. FDIC insurance
Federal Deposit Insurance Corporation (FDIC) insurance protects your money up to $250,000 per person, per account type, per bank in the event of bank failure. Basically, if your bank mismanages its funds and goes under, you won’t lose your hard-earned cash.
Nearly all savings accounts in the U.S. have FDIC insurance, but it doesn’t hurt to verify that for the account you’re considering so you know your money will be safe there. Usually, the bank will have a little notice in the footer of every page saying it’s FDIC-insured. You can also go to the FDIC’s website and look the bank up there.
One note for those working with credit unions: FDIC insurance is only for banks, but don’t panic. Credit unions have something similar called National Credit Union Administration (NCUA) insurance. This provides the same protection as FDIC insurance.
2. Competitive APY
A savings account’s annual percentage yield (APY) is usually its biggest draw. This determines how much interest you earn on your money over time. A higher APY means more money for you.
APYs fluctuate over time depending on how the Federal Reserve changes the federal funds rate. Right now, the best APYs are around 5%, which is high. If you earned this rate for a full year on a $10,000 balance, you’d make $500. That’s much better than the 0.01% that many brick-and-mortar banks offer. That would only earn you $1 on your $10,000 balance after a year.
Interest rates are expected to fall later this year, so what’s considered a competitive APY will change, too. If you have a savings account you’re considering, compare its rates to some of the best high-yield savings accounts out there to see if it’s competitive. Or start with a list of great high-yield accounts if you want to be sure you’re getting a good deal.
3. No maintenance fee
Maintenance fees are monthly fees you pay to own your savings account. They’re more common with brick-and-mortar banks who use these fees to offset the cost of maintaining all their branches. Often, there’s an option to waive them, perhaps by maintaining a certain minimum balance. Those who can’t do that could pay up to $30 per month. This could be more than you earn in interest, depending on the account’s APY and your balance.
Fortunately, most high-yield savings accounts don’t charge these fees today. Usually, a bank will advertise its lack of fees on the savings account page of its website. But if you’re not sure whether there’s a maintenance fee, a quick peek at the fee schedule on the bank’s website or a call to customer support should help you figure it out.
Most people handle their daily banking activities online these days because it’s easier than visiting a branch. Nearly all banks and credit unions enable you to set up direct deposit, transfer funds, and pay bills through an online account or mobile app. Ease of use varies, though.
It’s worth taking a few minutes to check out the user reviews for the bank’s mobile app before opening an account with it. In particular, look for recurring issues, like glitches or limited features. Decide if you can live with these shortcomings. If not, explore some other options.
5. Easy access to funds
Savings accounts keep your money close at hand, but they’re not intended to be as accessible as checking accounts. Checking accounts are for day-to-day spending, but money you keep in savings accounts is ideally supposed to stay there a while.
Because of this, you probably won’t find check-writing capabilities with a savings account, and ATM cards, while becoming more common, are still rare. Some banks also charge customers if they make more than six monthly withdrawals from their savings account. This used to be federal law, but the government waived it during the pandemic. Some institutions have kept it in place anyway or modified it slightly to allow a few more free monthly transactions.
These rules may not bother you, but it’s worth understanding how the bank limits your access to your cash anyway. Contact the bank with any questions and review its fee schedule so you understand what it can charge you for.
Focusing on the five things discussed above may not help you narrow down your choices to a single savings account, but it should help weed out the weaker choices. Choose a few of the remaining contenders and do a deep dive into their features. Then, choose one you like and fill out the online application.
These savings accounts are FDIC insured and could earn you 11x your bank
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