Most of us have a savings account at the bank where we do our everyday banking. We don’t think much about it and move on with our busy lives. Do you know if your money is actually working for you? What is the interest rate you are earning? Are you being charged fees for the account?
What if I told you that instead of sitting in your bank earning 0.10% you could open a savings account with another institution and earn 2.00% or more? That means that in one year your $20,000 savings account could go from earning $20 a year in annual interest to earning $400. There are a number of online savings options that offer some great benefits as summarized by this article in The Balance.
Some key considerations for opening a savings account:
- Should you open a high-interest savings account, a money market accounts or a CD? High-interest savings accounts can easily be linked to your checking account, so it is a simple process to transfer cash to your checking account if needed for an emergency. Money market accounts typically include a debit card or a checkbook. CDs are the least liquid choice and you will most likely incur a penalty if you withdrawal the funds before maturity.
- What is the current APY (Annual Percentage Yield)? The APY if the effective annual rate of return taking into account the effect of compounding interest. The financial institution may offer a tiered APY based on the account balance.
- Are there any account fees? Some banks will charge monthly maintenance fees that may be waived if you meet specific criteria. Due to banking industry regulations (Regulation D) depending on the number and type of withdrawals or transfers from your savings account you could find yourself paying fees up to $15 per transaction. In summary, understand all the fees before opening your account.
- What are you savings the money for? Your first priority should be your emergency savings account, an amount equal to 3-6 months of expenses. Above your emergency funds a high-yield savings account may hold cash for a specific short-term goal.
I challenge you before the holiday craziness begins, organize and simplify your banking. Review what accounts you have and close the ones that you no longer need. Make sure your bill pay, checking and savings accounts are working for you, not against you. If you have questions call or stop by the bank branch to better understand what options are available given what your needs are.