Opening a savings account is one of the best ways to securely set aside money and let it grow through interest over time. Having funds in savings provides a financial cushion for unexpected expenses or future goals like buying a house, taking a vacation, or retirement.
When searching for the right savings account, it is important to thoroughly evaluate all the options to find the best fit for your financial situation and savings goals. In the section below, we’ll discuss the factors to be considered when applying for a savings account.
An Overview of Savings Accounts
Savings accounts are deposit accounts held at banks that pay interest on the account balance. The primary purpose is to set aside money not needed for regular spending so that it can earn interest and grow over time. Some accounts offer higher interest rates to maintain a minimum balance or meet other requirements. When opening any standard savings account, be prepared to make deposits frequently and leave the bulk of funds untouched so your money can grow.
Key Factors to Consider When Applying for a Savings Account
1. Interest Rates
The annual percentage yield (APY) is the interest rate paid on a savings account, taking into account compound interest. Since earning interest is the main benefit of saving money, the APY should be one of the top considerations when choosing an account. It’s important to compare the interest rate for savings account across different financial institutions, as online banks and credit unions often offer the highest rates. Be sure to inquire whether the APY is an introductory rate that will later drop to a lower base rate after a set period of time.
2. Fees
Common fees charged on savings accounts include monthly maintenance fees, excess withdrawal fees for taking out money too often, and minimum balance fees for failing to meet account minimums. Try to find an account with no or low fees. Some banks waive fees if certain conditions are met, like maintaining a minimum daily balance or setting up a recurring direct deposit to the account. Be clear on all the fees before opening an account to avoid surprises.
3. Minimum Balance Requirements
Many savings accounts require depositors to maintain a specified minimum average daily balance to earn interest and avoid monthly fees. While some accounts only require 100 or 300 to start earning interest, others mandate 1000, 5000, or even higher minimums. Consider your ability to regularly set aside funds and reach minimum balance thresholds so your money can grow via interest over time without paying unnecessary fees.
4. Accessibility and Convenience
Look for a savings account that makes it easy to monitor balances, transfer funds, and deposit money digitally and in person. Many online banks offer robust mobile apps and convenient features like ATM fee reimbursements, overnight cheque deposits, and external bank account transfers. If you prefer face-to-face banking, find a savings account at a brick-and-mortar bank or credit union with branches and ATMs located near your home or office.
5. Safety and Insurance
As cash deposits are the main asset held in savings accounts, your money must be kept safe and secure. Avoid less conventional places to stash savings, like stocks that lack this insurance backing. For those looking to open a zero balance account online, consider a well-known financial organization.
6. Evaluating Bank Reputation
When assessing savings account providers, carefully research factors like years in business, financial strength, transparency, customer satisfaction scores, interest rate consistency, and fee structures. Favour banks with a long-standing history and positive reputation for treating customers fairly. Be wary of accounts with overly complex or vague rules around earning interest and avoiding fees.
7. Digital Banking Capabilities
In today’s digital era, online banking and mobile app functionality provide significant convenience and control over your finances. Look for a savings account that offers digital banking features like:
- Account alerts to monitor balances, withdrawals, low levels, etc.
- External account transfers to easily move money between accounts
- Bill pay and peer-to-peer payments to pay others directly from savings
- Budgeting and financial management tools
8. Additional Benefits
Some savings accounts add special features to an account or reward loyal customers over time. Savings accounts with loyalty programs increase interest earnings over time the longer you maintain the account. Accelerator accounts start with a base rate and then add tiers of interest as your balance reaches set milestones.
Conclusion
With interest rates on savings accounts rising in 2023, now is an opportune time to open or switch to a high-yield account. As you evaluate the options for placing your hard-earned savings, carefully weigh interest rates, fees, balance requirements, safety protections, and other features against your financial situation.
Choosing the right savings account takes a bit of upfront research but can pay off tremendously by growing your money faster over time. The extra interest earnings and fee savings make it well worth finding the account best aligned with your saving and spending habits.
