Having a healthy savings account is very important when it comes to responsibly managing your finances. Everyone needs some extra, “Rainy Day” cash on hand in case any unexpected events come up. And it’s important to make sure that cash is in a quality savings account that is going to keep your cash working for you.
Which brings us to interest rates. I’ve written about interest rates before so hopefully we all know how important they can be when saving or borrowing money. But there are so many banks and so many accounts to choose from. How do you compare high interest savings accounts? It comes down to a bit more than just finding the highest paying account.
There are three main features I look for when searching for a savings account:
- Interest rates (and any fees that could negate the interest rate)
- Accessibility for both deposits and withdrawals
I listed these in the order that I consider them, but they are each equally important. I have no problem sacrificing an awesome interest rate to make sure that my money is safe from fraud, bank bankruptcy, etc. If I wanted to risk any part of my balance, I’d just invest the money in hopes of making a much bigger return.
So let’s get into how to compare high interest savings accounts.
Make Your Money Work for You – Even if it’s Cash
When I say “make your money work for you,” I’m referring to the return on your money. Interest, growth, dividends. These are all different kinds of returns. Simply put, you want to make sure your account balance grows.
When you have a cash account balance, like in a savings account, the return will be in the form of an interest rate. The interest rate is the percentage that the bank gives you to have your money at their bank. So typically, the higher the interest rate, the better. (This is why I keep saying “savings” as these accounts tend to offer the highest interest.)
Step 1: Make a note of the interest rate in your current account, if you have one.
Write it down. You’ll forget it when you need it and have to look it up again. Trust me, I speak from experience.
If you don’t have an account yet, then you’re looking to be an interest rate of 0%.
Step 2: Head over to a site like Bankrate.com.
You can do a Google search for best savings accounts or something similar, but I’ve found that Bankrate is the easiest place to go. And they are always up to day. They also have a few free calculators that come in handy.
Take a look at their Savings/MMA section (MMA means Money Market Accounts). You can fill in your information on the left to get better results for your specific situation.
Sort by APY, annual percentage yield. This is the interest you’ll get from that specific account. (Yes I know APY is different from interest, but that’s a lot to get into right now.) You want to find an interest rate that is higher than your current rate.
Take into account the minimum balance listed in the results. This may be the amount that you’ll need to have in the account to get the listed interest rate. Otherwise, you’ll get a lesser interest rate. If you don’t have that balance, which is normally pretty high, don’t worry. There are many other accounts to choose from.
Pick an account or two to check out and head over to the websites of the banks that offers those accounts.
Simple Savings Calculator
Bankrate.com has a Simple Savings Calculator that is great for comparing numbers when it comes to interest rates. Click here to go to the calculator and start playing around with the numbers if you want to compare accounts dollar to dollar.
They also have a Compounding Savings Calculator if you want to get more technical. Typically, savings account interest is compounded daily and paid monthly, but check the fee schedule to find out for sure.
I like to use these to figure out if it’s worth the hassle to switch savings account. For example, I was thinking of opening an account of Vio Bank. These calculators showed that I would only be making an extra $50-100 per year. I’m still deciding if that’s enough for me to move my account, give another company my social security number, and re-setup all of my transfer information. It probably won’t be.
Step 3: Check Out the Fee Schedule
Fees on savings accounts can completely wipe out any interest your cash can earn. You can find a list of the fees in the Fee Schedule section of the Product Disclosure.
I know this seems like a lot of work, especially when websites state that there is no “Min to Avoid” fees or monthly fees – if you see a monthly fee, run away to a better bank. But fees are always good to research so you aren’t blindsided later.
Just make a note of any dormancy fees, check writing fees, overdraft fees, etc. If you feel like the fee could be applicable to you then maybe keep searching around.
There is one fee that is completely normal – some banks charge fees when you make more than six withdrawals in one month. This one is actually a requirement that must be met so the account can be a “Savings Account.”
The FDIC wants to encourage you to save money so they don’t like it when you pull money out all the time. If you continually take money out of a savings account 6+ times a month, the bank is probably going to close your account. (This is call Regulation D…if you’re curious.)
Side note – the bank also wants you to keep your cash in the account as opposed to making a lot of withdrawals. Banks make money by lending deposits out in the form of loans. It’s more advantageous for the bank when keep your cash in the account – which is why they offer you higher interest on savings accounts that have the six withdrawal a month restriction.
Easy Access to the Cash
I’m a big fan of having my savings account and my checking account at separate banks. I don’t want to see the money I have in my savings account except for the one or so times a month I check on the balance. Otherwise, I may spend it. Not to mention, my checking account bank pays next to nothing in interest.
If you choose to keep your savings account like I do, then you’ll want to make sure that you can move money into and out of the account as needed (just not super frequently).
Direct deposits are a great way to automate savings. This way, money can be transferred directly into your savings account from your paycheck. I can’t think of any bank that wouldn’t allow for direct deposits, but it’s always good to double check.
Automatic or on-request transfers from your checking account are also great options for automated savings. I’ve found these to be a little harder when it comes to being disciplined in your savings. It’s a lot easier to stop a transfer or to simply not request a transfer and then choose to spend it instead.
The entire purpose of a savings account is so that you have extra cash when you need it. So you want to have an easy way to access the cash. There are a few ways that a bank will let you have access to your money:
- Check Writing – some banks allow you to write checks against your account. This is a quick and easy way to get to your money. But maybe hide the checkbook so you don’t use it to buy that new grill you’ve been eyeing.
- Electronic Funds Transfer (EFT) – this is my preferred way to get to my money. I request an EFT, or a transfer of money from my savings to my checking account when needed. You’ll want to look into hold times though. Sometimes banks will put a hold on money transferred and you won’t be able to get to the money for anywhere from a day to a week or more depending on the amount transferred. Every bank is different.
- Wire – this one will most likely come with a fee, but is another quick way to get money from one account to another. The nice thing about a wire is that the money will be put into your checking account with no hold time. You can pull it out right away.
Safety May be Last, but it’s Very Important
Safety, when it comes to savings accounts and banks, is something that we all take for granted. But we shouldn’t. After the Financial Crises, banks were going bankrupt left and right. And even today, hackers and fraudsters are getting smarter all the time.
So, you want to make sure that the bank you choose is FDIC Insured. The FDIC is the Federal Deposit Insurance Corporation, an independent federal agency that will insure bank accounts up to $250,000. I don’t know of a bank that is not FDIC insured (Or the NCUA insurance if you’re looking at a Credit Union), but I’m sure there are some out there. This costs you nothing and should be a minimum requirement of any bank you do business with.
It’s a little harder to protect your money against hackers and fraudsters. These guys will try to get access to your accounts so they can steal your money. Banks that have good online security and good personal identification requirements when you call into customer service are going to be your best bet.
Basically, if the bank lets you have a password that is super short with no numbers or symbols that should make you worry. And if you call into customer service and the representative gives you account information without verifying that you are who you say you are? That’s a definite worry.
Banks these days are pretty up to speed on this kind of stuff, but some are definitely better than others. The big banks will probably have the best security. If you have a sizable savings account that you don’t check very often, I would definitely check out your banks security against account fraud.
Pick an Account and Get Saving
Picking a savings account is a crucial step in actually saving money and setting yourself up to be financially responsible. Keeping your rainy day fund under your mattress or in your closet doesn’t get that money working for you, or keep it safe.
The process to compare savings accounts is pretty easy. Use interest rates to narrow down the playing field – higher is better if possible. The Simple Savings Calculator on Bankrate.com can help you compare actual numbers.
Check on any fees that you may be charged. Then make sure there is an easy way to access the account for both putting money in and taking it out.
Finally, make sure you are comfortable with the bank that you chose. When in doubt, go with a reputable bank that offers a decent interest rate.
Then get saving, automate your saving, and keep saving. When an unexpected expense comes your way (like vet bills…), you’ll be happy that you thought ahead.
Did you look for anything else when choosing a savings account? Or did you decide to simply go with an account that was convenient? Let me know in the comments below.