Savings accounts are opened not only to act as a place to stash money for a rainy day but also to earn extra money from accrued interest on the account’s balance. It may seem like common sense to choose the account that has the highest interest rate; however, there are other features that set savings accounts apart from each other. Those features include accessibility, account conditions, and fees.
Online Versus Local Banking
The need to walk into a branch and withdraw funds is decreasing, as many people are enjoying the convenience of banking online. With the click of a mouse, money can be transferred to a checking account or a check can arrive in the mail. However, some people like being able to walk into a branch and withdraw money from their savings whenever they feel like it. Those that bank this way may want to choose a bank that has a local branch.
Promotional Rates
Investors may be tempted by high promotional interest rates without considering their expectations for the account. For example, some accounts only pay the higher rate if a minimum balance is maintained or if a certain number of deposits are made. Also, some banks significantly lower their rates after a promotional period to a rate even lower than their competitors. These conditions need to be understood before being seduced by the high numbers. It may be more beneficial to choose a bank with a steady interest rate if that rate is higher than the average of another bank’s promotional and permanent rate.
Fees
Fees should also be considered before opening a savings account. Annual fees and penalties for too many withdrawals are some of the fees that people fail to consider. Also needing consideration are the fees that may be charged by the bank depositing the funds. For example, some banks charge to withdraw funds to another bank.
2012 Winners Thus Far
Those items considered, 2012 is seeing interest rates for savings accounts in the 0.75% to 0.91% range. Ally Bank is offering a 0.79% APY (Annual Percentage Yield) as of March 1, 2012. They allow six transactions per statement cycle. Over 6 transactions, there is a $10 fee. Other than that, there is no minimum balance and no monthly fee.
American Express offers its High-Yield Savings Account with a 0.75% APY as of March 1, 2012. Similar to Ally Bank, there are no fees to open the account and there is no minimum balance required.
Offering an even higher APY is EverBank, with their Yield Pledge Money Market Account. The first year APY up to $50,000 is 0.91%. There is also a bonus 1.05% for the first 6 months. After the first year, the rate drops to 0.76%. The drawback is an initial $1,500 deposit and a limit of six transactions per month.
Higher rates come with more restrictions. Nonetheless, banks are always competing with each other. A novice saver should demand at least a 0.75% APY for their savings account in 2012.
Byline: George Gallagher is a regular contributor on a handful of personal finance and education blogs. When not writing he is helping graduates navigate the tricky field of private student loan consolidation (https://consolidation.custudentloans.org/), for which he has been working in for many years under not-for-profit credit unions.
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