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A savings account can be used for a variety of purposes. These are the most compelling reasons to employ one.
- Put Money Towards Your Goals: The most important function of a savings account is to help you achieve your financial objectives. If you're trying to save for a down payment on a home, you're well aware that it's not easy. It is, however, much easier to save in an account other than your bank account, which has dollars flowing in and out all the time.
- Prepare for the unexpected: Emergencies happen unexpectedly and are not always predictable. They can be challenging to manage if you don't have any money.Savings accounts are excellent for putting money aside and building up an emergency reserve
- Large expenses should be covered: Other major expenses can be covered through savings accounts. For example, you may need to purchase a new computer. You can save the money in a short period of time, thus a savings account is the ideal choice.
Most Americans have a savings account, but at least 77.02% of the savings accounts have less than $15,000. This is according to a report by Motley Fool, which shows 21.99% of savings accounts in the US have a balance of $1,000 to $5,000.
What is Good Savings Account Interest Rate?
As of May 2023, the national average for savings accounts is about 0.24% APY. So, any percentage that’s higher than that will give you an interest rate that is higher than what most people have. Usually, big banks pay around the national average or even lower.
Online banks tend to offer better deals. Credit Unions are also known to offer higher interest for savings accounts. You might want to check with credit unions before choosing which savings account you want to use.
Up to 4.81%
Alliant Credit Union
up to 4.20%
Where Can I Put My Money to Earn The Most Interest?
If you have a large sum of money, putting it in the right place can allow you to make maximum interest so you can have even more money by the end of the year.
High-yield savings accounts and certificates of deposit (CDs) both can allow you to earn interest, but they aren’t the only option. Money market accounts usually offer a little higher interest than savings accounts.
How Much Interest Will I Get on $100,000?
This depends on how the APY of your savings account. Some savings accounts are high-yield, meaning they earn more interest than others.
If you have a 3% APY and put $100,000 into a savings account, you will earn about $3,003 a year, considering the interest is compounded daily.
If you have a 5% APY (higher than most savings accounts offered by the average bank) and put $100,000 into a savings account, you will earn about $5,055 a year.
How to Shop Around For A Saving Account?
Choosing the best savings account requires preparation – here are the steps to take when choosing a savings account:
1. Understand Your Needs
You want to compare the interest rates you can get with your account, but you also want to look at other factors. For example, you want to know about the institution you will be dealing with. And how that relates to your wants and interests.
- How Much Can You Deposit? – There may be a minimum amount required to open an account at a specific institution. You want to know what that minimum amount is, so you’re prepared. It might be nothing. It might be $10, or for high-interest savings accounts; it could be $10,000 or more. If you don’t hit the minimum, you’ll be charged fees.
- Do You Intend To Make Withdrawals? – Do you want to make withdrawals from your account? How many are you planning to make in a month if you do? What is the bank you’re looking at going to do about that? Will you have limits on how many withdrawals you can make? Are you going to have fines or fees if you go over the amount that you’re allowed? Are there ways of withdrawing money that doesn’t cost you money?
- Are You Comfortable With Online Banking? – If you’re interested in online banking, you may be able to save yourself some money. There are some accounts and banks that are entirely online, while others might offer online services. Also, you can generally get higher interest through these accounts and have fewer fees and regulations. Not to mention you can access everything 24/7 online. Online banks tend to offer very competitive interest on deposits.
- Are You Managing Multiple Accounts? – Maybe you have an account at a different financial institution as well as this one. If you do, you may want to look at the benefits of bringing all of your accounts to one institution rather than keeping them separate.
- Are You Making Regular Deposits? – If you are going to make regular deposits, you may want to take a closer look at some institutions that offer you benefits and bonuses for this. You may need to have a set amount each month, but if you’re hitting that mark, you may as well get something for it, right?
- Are You Saving for Long Term or Short? – You’ll want to look at some of the benefits you can get for the type of saving you’re doing. If you have a short-term goal, you may be willing to sacrifice the interest rate you can get later for one you can get right now.
Based on data obtained from St.Louis Fed data, the personal saving rate declined to 3.6% as the global financial crisis kicked in, but the saving rate rose to 6.4% in 2008 and peaked at 12% in 2012. However, the personal saving rate declined to 6.4%, and the rate remained sluggish until 2020, when it achieved a new high of 13.7%.
2. Compare Your Options
Here are the top things to pay attention when shopping around for savings account:
This is one of the most important things and one of the ones that you probably actually think about, right? After all, you know that you want the best interest rate that you can get. That’s going to ensure you’re making as much as possible and your money is actually working for you.
Remember you’re looking at compounding interest in this process too. You’re earning interest on your money but also on the interest that you’ve already earned on your money and that’s definitely going to be a big benefit for you.
Make sure you’re keeping an eye on just how that works and that you’re looking for the best rates. When we talk about rates we’re talking about APY for the most part and this can be different from one institution to the next.
Make sure that you’re paying attention to that and that you’re comparing different places that you could be getting your accounts. You want to get the best features as well as the best interest rates.
Having to pay fees is definitely going to cut into the amount of money that you’re going to save and earn when it comes to your accounts.
So, how do you make sure that you’re not paying all those fees? You’re going to have to look at different institutions and you’ll need to pay close attention to just what the fees are that they charge.
There might be one for just opening your account or for having too low of a balance or making too many (or even any) withdrawals.
This is becoming a whole lot more popular lately and for good reason. There’s a whole lot that you can do with online banking that means you’re not forced to run to the bank all the time. You can just use your mobile device to get into your account and see what’s going on or what you want to do.
It’s important that you keep track of where you’re accessing your account and that you don’t log in using public accounts like those at your local library or coffee shop.
These can easily be hacked and your information could be compromised. When you’re using a private network, however, you could take care of your banking from anywhere.
Another great benefit is even being able to deposit your checks from anywhere you want. That gives you instant access without having to go to the bank to make that deposit in the first place.
The use of mobile banking as the primary banking method is more popular among younger households than older households, according to a 2019 FDIC report. At least 62% of young adults in the 15 to 24 years age bracket use mobile banking as the primary method to access bank account compared to only 8% of seniors in age 55 to 64 years who use mobile banking as the primary tool to access bank accounts.
When you first open that account you want to know just how much it’s going to cost you to keep the account open.
Then you want to know how much needs to stay there in order to make sure you’re not charged fees. You want this number to be low or even nothing at all because that’s going to help you if you ever find yourself with an emergency where you need that money.
You’re putting your money into an account with a financial institution because you want it to be safe. But you need to share a lot of information with that institution for them to do this.
So, make sure you’re looking at what they do to keep your personal information safe as well as your money. And don’t trust just anyone.
Look for institutions that are going to offer you a signing bonus.
These can vary in size and not all institutions offer them at all, but if you can get one it’s going to be completely free money and a big benefit for you.
Here are some of the promotions you can find these days:
Axos Rewards Checking
Chase Total Checking®
Citi Personal Checking
$200 – $2,000
$10,000 – $300,000
SoFi Checking and Savings
$50 – $250
$1,000 – $5,000
Bank Of America Advantage Banking Account
$1,000 or more in direct deposits within 90 days
Wells Fargo Everyday Checking
If you can put your money into your savings account automatically, you’re going to be far more likely to actually do it.
So, see if you can set up transfers automatically every time you get paid or monthly. You can set specific amounts for how much to put in the account but you want to make sure that you’re not being charged any fees or fines to do this.
How good is that branch about handling any of your concerns or problems? Do they seem like they really want to help you?
Are they going to get the problem resolved quickly? Are they easy to reach when you find out that you have a problem? These are all important ways to make sure you’re getting the attention that you deserve.
3. Open Your Saving Account
Okay, so you’re ready to open your account what do you do? It shouldn’t be too difficult. In fact, you should be able to just make a phone call or walk into the branch or even get online and start the account. Plus you should be able to do it in a few minutes.
With any type of account you want to be able to get good access and you want to know that you can link different accounts as well, so you can transfer money back and forth whenever you want to. Just make sure you have all the documents you’ll need to get that account going.
You may need to bring in a bill that has your mailing address and name, some form of photo ID like a passport, military ID or driver’s license or even a secondary form of ID like a social security card, birth certificate or bank statement from another financial institution.
If you’re looking at opening an account with a credit union instead of a regular bank, you may need to provide additional documentation that says you’re eligible for that account. Credit unions sometimes have more strict requirements for where their members work or the cause they support, but there are many credit unions with very easy requirements for new members.
Just make sure that you’re reading through everything before you sign. You don’t want to find yourself with any kind of fees, fines or other drawbacks that you weren’t thinking about. You want to know exactly what you’re getting and what you’re going to be paying in order to get it as well.
Can I Lose Money in a Savings Account?
If you decide to save money, two main factors could reduce your profit: inflation and taxes. You lose money if you use a checking or savings account to hold most of your assets.
Let's suppose your high-yield savings account pays 1% interest for your $10,000 deposit. If you leave it unattended for a year, your account will be worth $10,100.
To have the same purchasing power, your money would need to earn $300 if the inflation rate is 3%. You lose money if your high-yield savings account does not grow at the same pace as inflation.
You are not taxed for any deposits to your account. Only the interest earned is. Uncle Sam receives a percentage of every dollar earned in interest. The tax rate on most income is the same as your other income.
Is Inflation Something I Should Worry About?
Because there is no way to avoid inflation, you should definitely consider it in your investing and savings strategy.
While the interest rate is now much higher than it was in the recent 15 years, the inflation pace is high as well and actually hurts your savings – the purchasing power of your money is going down at a higher pace than the extra money you get on your savings.
However, while savings account yield is lower than the inflation rate, it doesn't mean you can do more with other investing options. Stocks and bonds performance were negative in 2022. Actually, there were few investing tools with a +3% yield.
Where should I put my savings?
Many people choose to put their savings into a savings account at the same bank they have their checking account. This allows you to transfer funds easily and keep track of your money. If your main concern is earning the most interest though, you might want to consider using an alternative option.
CDs offer higher interest and are a federally regulated way to keep your money safe and tucked away. You will not be able to withdraw the money through without fees and penalties. Money market funds, money market deposit accounts, treasury bills, and bonds are also all common ways to put away money for savings.
Are high-interest savings accounts safe?
Savings accounts are regulated by the federal government, which means your money is protected the entire time it’s in the savings account. High-yield savings accounts are protected by the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Association (NCUA).
The federal regulations for withdrawals from a savings account also are in place for high-yield savings accounts just as they are for normal savings accounts.
What is bad about a savings account?
Savings accounts are generally a good idea if you need a safe place to tuck away some money, but there are some cons. The main one is that they almost always have minimum balance requirements.
This means if you need some money, you will have to face penalties and fees to withdraw if it will make the balance lower than the minimum. Savings accounts also have lower interest than other options for keeping your money in savings.
Federal limits for withdrawing also apply for savings accounts. This means you can only withdraw money certain times a month and then you will have to wait until the next month if you need funds.
How Savings accounts differs from CDs?
CDs are quite similar to savings accounts, but they pay much higher interest rates. They are both a safe place to keep money for the future and a way to earn interest on your money.
CDs do not permit you to touch the money while it is in the account. Savings accounts typically allow you to withdraw or transfer funds 1-3 times per month, depending on the bank. You don't have to worry about losing your money because they're both federally insured.
A savings account usually requires only a small amount of money to open and a small minimum balance. CDs, on the other hand, have a higher minimum balance requirement and typically require you to keep the balance for the duration of the contract or risk losing interest accrued.
How much should I save for a down payment on a house?
It is determined by the cost of the house. It may be a better decision to save only for a large down payment on a home rather than the entire purchase price. Saving for a house can take years, and you may end up spending more money renting than you would if you took out a mortgage.
If you want to put down $40,000 on a house in the next two years, you'll need to save at least $3333.33 per month. You will then be able to make a substantial down payment and finance the remainder of the house.
What percentage of your income should you set aside each month?
This is determined by what you are saving for and how much money you believe you will need to achieve your end goal. If you want to pay for a $10,000 car in cash over the next five years, you'll need to save at least $167 per month. The percentage of this amount is determined by your annual income.
Some experts recommend that you save 20% of your income, but this is not a hard and fast rule. Some people will need to save more money than others, for example, if they have a large family or require emergency funds.