What You Need To Consider Before Committing To A Savings Account

Savings accounts are among the most basic and foundational building blocks of any financial plan, and they may be coming to mind as the markets and the economy are ravaged by the coronavirus pandemic. They provide a safe way to keep your money until you’re ready to spend it on your goals.

When it comes to choosing the right savings account, the many options that are available can be overwhelming. 

Do you go with the traditional brick-and-mortar financial institutions, or do you choose an online banking service?

Here are a few things you need to consider when deciding the best savings account for you.

What Are You Saving For?

The first step in choosing the right savings account for you is to determine how you want to use the money.

Savings accounts are perfect for short-term financial needs and goals. Most people use a savings account to save money for emergencies, according to a recent survey conducted by US News.

Other reasons for using a savings account include:

• House down payment
• College seed fund
• Travel expenses
• Buying a car

If you’re saving for several goals, you may want to consider a bank that allows you to earmark funds for different uses. This way, you won’t use your house down payment money for travel expenses.

When deciding on your saving goals, also consider how long you'd want to save the money. If your goal is more than five years away, an investment account could be a better choice.

Do You Want To Use The Same Bank As Your Checking Account?

Are you easily tempted to withdraw from your savings account?

If so, you may want to consider opening a savings account in a different bank from where you have your checking account. Keeping your savings account in a separate bank from your checking account will take away the temptation to withdraw money.

If you’re a disciplined saver or want easy access to your savings, consider using the same bank as your checking account.

Consider Interest Rates

When it comes to choosing a savings account, look for a high-yield savings account.

Unlike a traditional savings account, high-yield accounts allow your money to grow at higher interest rates.

Traditional savings accounts have an average interest rate of 0.09%, while high-yield accounts can earn interest of up to 1.5% to 2% interest per year, according to the FDIC.

Although not an exponential growth rate, it's still better than the 0.09% offered by a traditional savings account.

It's important to note that interest rates change with the Federal Reserve Prime rate.

Consider Banking Fees

Before committing to a savings account, it’s also important to consider fees involved with the account.

What is the minimum deposit or balance?

Some banks require you to maintain certain balances to avoid penalty fees. Some banks offer savings accounts with no minimum balance requirements. Such are the banks you should go for.

You should also choose a bank that has no monthly maintenance fees. Your goal is to save and grow your money, not spend it on unnecessary fees.

What Do You Value Most?

It’s important to choose a bank that aligns with your values.

Do you expect to use online banking services? Choose a bank with a well-designed and functional mobile app.

Do you value customer service? Go for a bank known for its great customer service. Are you passionate about the environment? Choose a bank that’s known for supporting sustainability efforts.

Open An Account And Start Using It

Once you’ve followed the above steps, it’s time to open a savings account.

Make an initial deposit, then ensure you remain consistent with your subsequent deposits.

You can set up automatic deposits to make sure your account is credited consistently.