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How to Choose the Best Savings Account

This article was written by in Banking. 6 comments.

Picking the right bank is not as simply as it once was. To help, we show you how to choose the best savings account based on rates, fees and customer service.

Choose the Best Savings Account

In a world with literally thousands of options at your fingertips, choosing a savings account can be tough. These days, you won’t get extraordinary interest rates anywhere. But many online and even brick-and-mortar banks offer a variety of other benefits to turn heads. You might get a sign-on bonus, like you would with a credit card. Or maybe you get a slick online system to track your savings.

Whatever your goal, there’s a savings account out there to help you meet it. You just have to choose the account that works best for your needs.

Why Do You Need to Save?

Your first question is why are you saving? There are, of course, a few basic answers to this question. Everyone should have some short-term and longer-term savings goals, and everyone should save for emergencies. But beyond that, you might have particular goals in mind for your savings account. But here are some angles to consider when deciding on a savings account for your needs:

Saving is not the same as investing. All too often, we get the idea of saving and investing confused. Sure, we hear a lot about “saving for retirement.” But, really, we’re investing for retirement. Investing comes with higher risks but should also, over time, net you better returns. Saving in a savings account, on the other hand, won’t get you much by way of interest. But that’s not the point. The point is to keep that money–money you might need in the short-term or in an emergency–safe and secure.

You may have different accounts for different purposes. The proliferation of free online savings account options has made this approach easier than ever. You might have several savings accounts, each with its own purpose. This can make it easier to maintain different goals for your savings. Maybe one account is for your annual vacation, another is for emergencies, and a third is for a down payment on a new home. Just be sure you’re not paying fees for all of these accounts, which can incrementally wear down your savings rate.

Savings doesn’t need to be easily accessible. Too often consumers default to keeping their savings accounts with whatever bank has their checking account. This isn’t a terrible strategy, as long as the product is a good fit otherwise. But remember that your savings account doesn’t necessarily need to be easily accessible from your checking account. In fact, sometimes separating them is a better strategy for avoiding spending that set-aside money.

So with these things in mind, let’s talk about what to look for when you’re choosing a savings account.

What to Look for in a Savings Account

There are so many savings account bells and whistles. And some of them are great. It can be nice to be able to automatically roll “spare change” from your checking to your savings account, for instance. And having tools to automatically track your savings account balance on your phone is also great. But these are really extras. At the core, here are the five things you need to consider when looking at a savings account:

  1. Stability
  2. Fees
  3. Accessibility
  4. Interest Income
  5. Service

Let’s tackle these issues one by one here.

Stability: Look for FDIC Insurance

The first thing to look for in a savings account is FDIC protection. This ensures that your money will be available to you, even if the bank you choose fails. As we saw in the early 2000’s, even the banks with the best reputations can fail. So always be sure that your money is FDIC insured. Or if you choose a credit union, look for National Credit Union Administration insurance, which is similar to the insurance offered by the FDIC.

Fees: How Low Can You Go?

These days, there are so many fee-free options available that you really shouldn’t be paying for a savings account at all. But if you do choose one with conditional fees, see if you can meet the requirements for having those fees waived. Even fees as small as a few bucks a month will wear away at your savings over time. And, again, with so many fee-free options on the market, there’s just no sense in paying fees for your savings account. And if you plan to maintain a relatively large balance, you’ll have even more fee-free options available!

Accessibility: Get Your Money When You Need It

Sure, you might find a bank that offers outstanding interest and no fees. But if it’ll take you a week to transfer money from that bank to your checking account, it’s not a good place to store your emergency fund. Generally, the more likely you are to need the money at a moment’s notice, the more easily you should be able to access the money. But as we noted above, you may not want to have all your savings linked to your checking account, as that can cause unnecessary temptation to overspend.

The bottom line here is that you might need different levels of accessibility for different accounts. Maybe half your emergency fund is at a bank in town so that you can withdraw cash without ATM fees whenever you need it. Store the rest of it at an online bank with a good interest rate. It’ll take a couple of days to get your money, but not usually more than that. And then you can store savings for particular things like your next car somewhere that you can access the money within three to five days.

Interest Income: Higher Isn’t Always Better

Remember, this type of savings account is not for investing. And in today’s environment, you shouldn’t expect to find an account with stellar interest rates. The differences between banks are pretty small too, so don’t choose based on this factor alone. With that said, earning a bit of interest can offset some of what you’d otherwise lose to inflation. So do look at interest rates, especially when choosing a bank for longer-term, higher-balance savings that will earn more over time. But, of course, be sure to balance any increases in interest against potential increases in fees, which can quickly erode that extra interest income.

Service and Tools: Look at Reviews

Good customer service is essential for a bank. If you have trouble logging in online and need your money, you need to be able to get someone on the phone to fix the problem. So check around for customer service reviews for the banks you’re considering. Then, be sure to take a look at additional tools that you might find helpful. These days many banks have apps for managing your money, take check deposits from your phone, or have financial advice available for free. These aren’t make-or-break features for most customers. But they can be the icing on the cake.

Once you’ve gotten through all of these steps, you should be able to find a savings account–or two or three!–that meets your particular needs. You can check out our reviews of particular accounts, such as the Capital One 360 Savings account and the Barclay’s Online Savings option. You’re sure to find a savings account that will perfectly suit your needs.

Published or updated March 30, 2018.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 6 comments… read them below or add one }

avatar 1 shellye

Good post. I would also add that consumers should look for alternatively-named accounts to park their savings in, like “Christmas Club” accounts, “vacation funds” or whatever. Many banks and credit unions will pay a little higher interest on these accounts, since they’re usually “Sweep” accounts and are funded through payroll deduction or automatic transfer. I know many people who use a Christmas club account for a regular savings account and earn about 4x the interest they would on a passbook savings account. They save a fixed amount of money each month into the account, then on a specified date, the money is ‘swept’ into a passbook account for easy withdrawal. Then they call the financial institution and ask them to put the money back into the account to continue earning a higher rate of interest. It’s good if you have to save for things like insurance premiums or homeowner assoc. dues, etc.

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avatar 2 Anonymous

In my earlier investment days, I too thought of savings accounts as investment vehicles. Now, I’ve realized that there are much better options with bigger returns. My savings account exists solely for those rainy day expenses, such as when my car breaks down. Everyone should have a savings account as an emergency fund. I agree with Shellye regarding sweep accounts, but it’s important to keep your savings separate – one account for a vacation fund, and another for emergencies, for example. (I think your tiered emergency fund concept is genius.) Labeling accounts makes it easier to hold yourself accountable for your spending habits.

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avatar 3 Ceecee

I can remember in the eighties when the interest rates on CD’s were 12% or so, but the borrowing rates were more……it’s all relative!

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avatar 4 skylog

great post! i think that you hit it on the head with all of your criteria and the names you throw out as examples. i can simply not imagine rates of 18% in a savings account. i feel if those returned, there would be some other very serious problems with the economy as a whole, much as there was in the 1970’s. it would be interesting to see how things would be different given how much has changed in the both the world of finance and the general population.

that said, i would be jumping for joy if i could just get back my 4% or 5% from some years ago. it has been so long, it is almost hard to remember.

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avatar 5 lynn

I think this is the best post I’ve read. ( I AM a newbie, so I bet there’s lots more) Since I’m retired, vehicles for me are a bit different than when I was a working girl.

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avatar 6 qixx

I have an account at ING Direct and can attest to their customer service being great.

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