Saving money leaves one in a stable financial position to take care of emergencies or situations ranging from starting a business, going to college, or buying shares. There is no magic trick to becoming an instant millionaire. However, there are many ways one can nurture a savings culture. It is for this reason that savings accounts are vital components of established financial systems around the world.
What is a Savings Account?
Different from a checking account, a savings account is a primary type of bank account that allows people to deposit money for a given period while earning savings account interest. Banks, credit unions, and other financial institutions offer such accounts.
Savings account interest can be low compared to other financial products. However, they provide an easy way of growing money at reduced risk. The best savings accounts offer a reliable means of keeping money safe and carry out withdrawals whenever the need arises.
Putting money in savings tends to be a little bit safer in part because most accounts are usually insured. In contrast, saving at home exposes one to the risk of losing everything in case of a fire or robbery. In the U.S, the Federal Reserve requires financial institutions to ensure customer’s money through the Federal Deposit Insurance Corporation.
Savings accounts do require a low minimum balance depending on the financial institution. However, some come with no bare minimum deposit. Savings accounts are used in both short and long term financial strategies.
How Do They Work?
Savings accounts operate like checking accounts. However, some banks or credit unions require account holders to give notice before carrying out withdrawals. Penalties at times come into play on account holders withdrawing part of their deposits before a specified maturity time.
Some financial institutions have restrictions on the number of transactions that one can carry out on their savings, a month. It is also important to note that savings accounts do charge various fees depending on the average balance in a given savings account. In contrast with other accounts, most savings account don’t come with a check provision.
Interest rates on offer, which allow people to multiply their deposits, vary depending on the financial institution. The interest rate also tends to be a little bit low compared to those on offer with long term deposits such as CDs and money market accounts.
The Interest rate on offer can at times be lower than the prevailing inflation rate. This is something that can cause an account to lose purchasing power over time.
What You Need To Know
Savings accounts with high Annual Percentage Yield (APY) are some of the best. They allow people to grow their holdings much faster. Normally, a bank would use the money deposited in a savings account to offer loans to other individuals. Then, it would pay the account holders some interest.
Online Savings Accounts
While savings accounts are synonymous with low-interest rates, online savings accounts tend to come with higher percentage yield. Online banks tend to offer higher percentage yield on holdings. This is in part because they do not have to support expensive brick and mortar operations.
With online banks, the annual percentage yield (APY) tends to be above 2%. Such savings accounts also come with low initial deposit requirements and do not charge a monthly maintenance fee.
Notices & Withdrawals
Another critical thing to remember: money may not be accessible or limited with savings accounts. That is in comparison with checking accounts where your money is readily available. To access funds in a savings account, one may have to issue a notice. Withdrawals in some savings accounts before the maturity date at times can trigger penalties. Not unlike mortgage refinancing.
Federal Laws in the U.S also do limit the number of transfers that one carries out in a savings account. Making any additional transfers through a check, debit card, or online could result in additional costs.
Why You Need a Savings Account
While savings accounts do not pay much-given interest the rates on offer, they are ideal for anyone wishing to enjoy financial success. Unlike a checking account, a savings account allows you to keep money far away from everyday spending.
That alone can help you eliminate the temptation of spending money that you would prefer to keep. Putting money in a savings account makes it possible to earmark holdings for long-term goals and not short-term satisfaction. Life events that you know are coming up are a great way to start leveraging a savings account. For instance, planning to start a family, buy a house, buy a car, attend college, retire, or perhaps travel? Then, selecting the right savings account can help you achieve your goals better.
It is good practice to put money in a savings account even if you aren’t saving for anything in particular. In this case, savings account act as excellent storage for emergencies, among other savings goals. With savings, one can address various emergencies without having to go into debt.
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Savings account provide a reliable way to earn something in the upwards, depending on the prevailing interest rate. In contrast, having money at home or in a checking account would only continue to depreciate.
Savings accounts also provide an excellent place to store cash, thus reducing the risk of losing it. A bank or a credit union will always be a safer place to store excess cash. The main factor upholding safety is the insurance aspect that ensures one’s holdings are protected from losses.
Drawbacks of Savings Accounts
There are very few drawbacks as to why one should not own a savings account. This is in part because they are easy to open and operate. Also, they do not typically have a cost associated with them. The relatively low savings account interest rate is one of the drawbacks that may be undesirable to many.
However, the idea is not to get rich fast. It is to keep money safe for future use and avoid unnecessary expenditures.
Financial institutions provide people a couple of savings vehicles to choose from. Money market accounts are alternatives to a savings account and a preserve for people who wish to take advantage of better interest rates. Such accounts come with a higher minimum deposit in addition to the ability to write checks or use a debit card Certificate of
Deposits, on the other hand, operate the same way as a savings account as they hold money for a fixed term. Unlike savings accounts, they come with a high annual percentage yield. The longer the term you commit, the higher the interest rate one is offered.
A CD account is for people who will not withdraw money before the end of the term. Early withdrawals tend to incur penalties, as is the case with some savings accounts.
How to Open The Account
Nurturing a ‘savings habit’ is critical to financial wellness and success. One easy way to build this habit is to open the best savings account that offers a high-interest rate with zero monthly service fee. An ideal direct savings account should also come with low or no minimum balance requirements.
If you don’t have enough money to meet the minimums, then we highly suggest learning some easy ways to make extra money.
Identifying the Best Savings Account
It is possible to find a savings account that offers an annual percentage yield of as lows as 0.01%. However, it is possible to find a savings account with a return as high as 2% for the interest rate.
The interest rate is a key priority when selecting an account for attaining saving goals. For instance, consider a savings account that offers a 0.01% interest rate and compounds interest monthly. In this case, if you deposit $10,000 into the account, you will end up with $10,001 at the end of the year, which explains why it is important to consider the interest rate while shopping a savings account.
However, it is also essential to go beyond interest and consider how the credit union or bank compounds interest. One would stand to earn more in the form of interest on saving with a financial institution that compounds more often, such as daily as opposed to those that compound monthly.
Besides, it is crucial to consider the fees charged by a given financial institution. You do not want to find your savings eaten away by hefty monthly maintenance fees. Some banks charge as much as $35. The best savings accounts rarely charge monthly fees. That’s because banks waive the monthly fee if you follow their guidelines. These guidelines may include establishing a direct deposit or agreeing to a given minimum balance.
Gather the Necessary Documents
Once you have identified the ideal savings account with minimum monthly fees and high-interest rates, it would be essential to gather the necessary documents for opening an account. The application process would run smoothly if one has a driver’s license or a government-issued ID.
A social security number is necessary, in the U.S, in addition to having a residential address. Some financial institutions may require a bank account number and routing number needed to fund the savings account once opened.
Once a savings account is set up, the next step is funding the account to attain the bare monthly minimums required by the bank. Building a savings account is no easy task, which explains why most people struggle. One of the simplest ways to establish a good savings habit is by creating an automatic transfer from a checking account.
Financial institutions will allow you to set up your savings account on autopilot. In this case, your savings account will grow automatically given the deposits taken automatically from a checking account.
Another way to fund a savings account involves making deposits in cash using tellers in a credit union branch or bank. It is also possible to make deposits at ATMs, a provision that makes it possible to fund a savings account outside banking hours.
Another provision involves depositing checks directly into a savings account. All you have to do in this case is indicate a savings account number on a deposit slip. One can also make wire transfers into a savings account from another bank. In this case, one will have to link a local brick and mortar account, to an online account.
It is essential to keep an eye on a savings account. This way you are ensuring the savings goal is satisfied. The best way to do so is to download a banks’ mobile app. It gives you the ability to view a savings account and deposit checks wherever and whenever.
Understand Withdrawal Limits
Savings accounts and money market accounts are subject to Regulation D. Established by the Federal Reserve, it limits the number of withdrawals one can carry out. As it stands, one cannot carry out more than six withdrawals from a savings account, a month.
Withdrawal limits are limited to certain types of transfers, which include transfers to other accounts, held by a given financial institution. Check transfers, as well as ACH withdrawals and Debit card transactions, are also counted as part of transfers from a savings account. Phone transfers and overdraft transfers into checking accounts also count.
Saving accounts are not liquid. Unlike checking accounts, savings accounts do not provide the ease of access to funds. It is also worth noting that it is not possible to write checks with most savings accounts.
If you want to check writing abilities or ease of access to funds, then you would be better at opening a money market account. With such accounts, it is possible to link to a debit card. A money market account is also not affected by federal regulations when it comes to ATM withdrawals.
Fees and Cost Associated
There are strings of limitations as well as costs, synonymous with saving accounts. For starters, such accounts have minimum balances that one must maintain. Banks and other financial institutions charge a monthly fee or annual fee for individuals who fail to maintain the minimum balance. Such fees are usually withdrawn from the account, which exposes it to the risk of going below zero in case overdraft fees come into play.
Unlike banks, credit unions rarely charge fees. Instead, such institutions put a hold on a specified dollar amount that one must deposit in their accounts. For instance, if the amount held is $35, you won’t be able to access the amount as long as the savings account is open.
Saving accounts are designed for long-term savings, and with that, they come with a limit on the number of withdrawals one can carry out. Given that the Federal Reserve has set the number at six, one stands the risk of having their savings account converted into a checking account, carrying out more than six withdrawals.
The internet has changed the world of banking while maintaining its premise. Online banking, just like the traditional way of banking, enables the principles of lending, saving, and earning interest on holdings. Online savings account are increasingly cropping up, making it easy to save money on the touch of a button.
High yield online savings are becoming a firm favorite to most people given the high returns they promise. The annual percentage yield on such accounts also tends to be much higher, compared to that offered by traditional financial institutions. Make sure to check out the online Roth IRA’s now made available online.
For instance, many online savings accounts offer an APY of more than 3% compared to less than 1% offered by many traditional brick and mortar banks. These high APY’s are also even higher than some money market accounts, which make them suitable for growing long term investments.
Online saving accounts offer high APY in part because of their low operating costs. Unlike traditional banks or credit unions, such facilities do not rent brick and mortar space, nor do they require a massive workforce for operations.
Online saving accounts pass the synergies they enjoy on operating online to their customers by charging low fees and require no minimum balance. High-interest rates also come into play, as most of them do not have wages, maintenance, and real estate costs to contend with.
The convenience of viewing statements online and carrying out electronic transfers also makes online saving accounts desirable.
Best Online Savings Accounts
Some of the best online savings accounts include Citizen Access Online Saving Account, which offers a 2.35% APY. You need a minimum deposit of $5,000 to open an account with them, which is high, compared to what is being provided by traditional banks.
Marcus by Goldman Sachs Online Savings offers a 2.25% APY with no monthly fees and no minimum balance required to earn interest. However, the online savings account does not provide a checking account or access to an ATM.
HSBC Direct Savings offers a competitive 2.30% APY and comes with no monthly fees. You only need $1 to open an account with them. Barclays Online Savings provides high yield savings accounts accessible through a streamlined website. In addition to offering a 2.20% APY, the account does not come with any monthly fee or minimum balance requirement. The savings account does not come with a checking account or ATM provision as well.
Savings vs. Checking Accounts
Savings and Checking accounts differ from one another on the purpose they serve. Checking accounts operate as payment accounts as they are ideal for money that one intends to spend soon. Such statements allow one to make payments be it online payments, in-person purchases, and electronic billing.
Savings account, on the other hand, hold money that one does need the right way. The accounts are designed to save money for a given course as they provide a method of separating funds that one does not need to spend soon.
Saving accounts are designed to keep money safe while paying a modest amount in the form of interest on the account balance.
The Best High-Interest Saving Accounts October 2021
Popular Direct Exclusive
Popular Direct Exclusive Savings Account is one of the best savings accounts on almost all aspects discussed above. The account offers an average interest rate in the range of 2.36% APY one of the highest in the sector. The savings account is also FDIC insured, which ensures money is protected against risks that may occur.
The account comes with daily compounding interest, which makes it a high yield savings account. Deposits into the savings account can be made through a mobile app, deposit from a phone or through a wire transfer, making it easy to add savings.
However, to open an account, one must be willing to maintain an account minimum of $5,000 to enjoy the high savings account APY. Should the balance in any given day fall below the $500 threshold, then a $4 monthly service fee comes into play.
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Salem Direct eOne
Salem Direct eOne Savings is ideal for people who do not have $5,000 to open a high APY savings account. You can open the account with as little as $100 and stand a chance to have your money compounded at a 2.30% average interest rate. The account has no minimum balance and does not charge any monthly fees.
The savings account comes with a limit of six withdrawals per month as set by the Federal Reserve. However, one can deposit into the account as many times as they wish. Account-holders gain access to mobile, and online banking with the savings account, in addition to mobile deposits text alerts and wire transfers to and from external accounts.
American Express offers an FDIC insured savings account. A 2.10% annual percentage yield APY makes it; a high-yield savings account for people who wish to grow their holdings at an impressive rate. The account also comes with a better than average customer service ratings.
DollarSavingsDirect Dollar Savings Account is a top savings account given its low minimum opening balance. With just $1 you can open a DollarSavingsDirect account and stand to earn 1.80% APY. The bank is FDIC insured means one can rest assured their money is safe all the time.
DollarSavingsDirect has no minimum deposit and no fees like any good savings account and has no minimum balance requirement or fees. The account has roots dating back to 1850.
PurePoint Financial Savings Account accords customers a 2.35% APY ideal for growing deposits at an impressive rate, given the compounding in play. However, a $10,000 minimum opening deposit could be a deterrent to most people as it is one of the highest.
While you do not need to maintain a $10,000 balance in the account to avoid fees, the savings account average interest rate drops to 0.25% on balances below the $10,000 threshold.
In addition to the competitive savings account rate, the savings account does not come with monthly fees. It also offers online and mobile banking provisions.
Ally Bank Savings Account
Ally Bank offers one of the best online savings account with a 2.0% APY. No monthly fees in addition to mobile check deposits provision are some of the attributes that make the account stand out. If you wish to keep all your banking at the same place as well as mobile check deposits, then this is the account to have.
Ally Bank savings account is an excellent choice for all the banking needs, given the high yield checking, well-built website, and secure transfers.
VirtualBank eMoney Market
While it is not a traditional savings account, it comes with most of the synergies of a savings account. The account is FDIC insured and offers an attractive 2.36% APY for new customers. While the account is not fee-free, it has no minimum balance that one must maintain. The savings account supports mobile and online banking as well as mobile check deposits.
Vio Bank High Yield Online
Vio Bank High Yield Online Savings is a savings account that comes with a $100 minimum opening deposit and a competitive 2.35% annual percentage yield APY. Owned by Vio Bank, you can open an account by visiting brick and mortar locations in Oklahoma, Arizona, California, and Colorado.
CIT Bank Money
CIT Bank Money Account is one of the best savings accounts, as it does not have a high balance requirement. With just $100, one can open an account and stand to have their deposit earn an interest rate.
The account offers the best money market interest rate for lower balance accounts of as much as 1.85%. CIT saving builder was developed with the aim of rewarding savers with well-beyond average interest rate and to encourage them to continue saving every month.
This savings account also offers online banking as well as a product dubbed People Pay for Transfers. The account also comes with no opening or monthly service fees. With the CIT savings builder account, you can access your money at any given time. Wsideithdrawals ate available through ACH transfer, wire transfer or mailed check.
Established in 1997 and headquartered in Salt Lake City, WebBank offers one of the best savings accounts in the market. With a minimum balance of just $1,000, one stands to earn a 2.50% savings account APY. Other perks include zero monthly fees.
WebBank stands out in part because deposits get compounded daily and the interest earned is paid on the last business day of the month.
Community Direct High Yield
Community Direct Bank launched its high yield savings account in October of this year. It has made a name for itself on co-branded products as well as private label and business credit card programs. A 2.48% APY is one of the highest in the market.
Supported by a direct mobile app, making deposits and withdrawals is very easy. The app is available for both iOS and Android devices.
FNBO Online Savings account stands out in part because it guarantees ease of access to any money deposited. Easy transfer options to and from accounts are some of the other benefits on offer.
One of the perks is that FNBO Direct accounts do not come with any monthly fees or minimum balance requirements. With as little as $1 for opening an account, you can be on your way to enjoying a 2.20% annual percentage yield APY.
Synchrony is an award-winning high yield savings account that guarantees a 2.25% APY on account deposits. No minimum balance is one of the benefits that account holders enjoy. Additionally, they have access to 24/7 digital banking that makes it possible to manage an account from virtually anywhere.
Available withdrawal options also make it possible to access cash online via the phone or an ATM.
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