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How to Choose a Savings Account
Americans' personal savings rate—savings as a percentage of disposable income—is rising, according to the U.S. Bureau of Economic Analysis. No matter your savings percentage, banks and other financial institutions offer an array of savings account options to help you meet your savings goals.
How do you know you have the right personal savings accounts for your savings goals? In this article, we'll look at some savings account basics, review how to choose a savings account, and describe the banking options available to you at TD Bank.
What is a savings account?
A savings account is a deposit account in which money can be held for short-term and longer-term goals. It's not a spending account. The number of monthly withdrawals may be limited, so it's not suitable for daily transactions—a simple checking account is better for that.
Savings accounts earn interest. Higher balances and longer terms, such as with certificates of deposit, generally have higher returns than regular savings accounts. With few exceptions, interest is considered taxable income and reported to the IRS.
It's easy to open a savings account. It just takes a government ID, Social Security number, proof of address and initial deposit. Linking checking and savings accounts at the same bank makes transferring between accounts money easier.
Common features you may find in savings accounts
Banks offer different features and benefits with their savings accounts. Before shopping for a savings account, consider which features are most important to you.
FDIC-insured
The Federal Deposit Insurance Corporation (FDIC) backs personal bank accounts with the "full faith and credit" of the federal government, up to $250,000 per depositor per account category per insured institution. With a few exceptions—mainly investment accounts—all savings categories at insured banks are covered, including money market accounts, health-savings accounts and college savings accounts.
Direct deposit
Direct deposit can help you build your savings. With this feature, you can send some of your earnings each pay cycle directly into a savings account.
Quick transfers via mobile or online banking
Integrating savings accounts and checking accounts at one bank using online banking and a mobile app makes it easy and fast to move money between accounts.
Automatic overdraft protection
This feature is activated if you spend more from the checking account than you have in the balance. The bank will transfer money automatically from savings to checking to cover a deficit, helping you avoid an overdraft fee.
What to consider when choosing a savings account
When you're ready to open a savings account, it's a good idea to review the terms and conditions being offered by financial institutions and ask for a fee schedule. Here are some common points for comparison.
Annual Percentage Yield (APY)
If you intend to use your savings account for short-term savings goals, the interest rate and APY, which reflect the return you'll get for the deposit, might not be a big factor. The money won't have much time to build interest. But it still pays to compare; all things being equal, a higher APY beats a lower one.
Monthly transfer limits
Some banks may limit you to no more than six convenience withdrawals, transfers or payments per statement cycle. Any more than that may incur a fee. TD Bank's Signature Savings does not charge a fee for excess transactions.
Monthly fees
Banks often charge a monthly maintenance fee on savings accounts. Many banks, however, will waive fees if you maintain a certain minimum balance, link a checking account or meet some other requirement.
Minimum balance
Some accounts require you to keep a minimum balance. In general, the lower the APY, the lower the minimum balance required.
Relationship rates with a linked checking account
Relationship banking is when banks offer many different products and services, as does TD Bank, to build loyalty among their customers. As a relationship banking customer, you might qualify for exclusive services, deals and perks, such as better rates on deposit accounts or loans.
Common types of savings accounts
Depending on your savings goals, banks offer a variety of savings account options. It's not uncommon for someone to hold multiple accounts at a bank to build a mutually beneficial banking relationship.
Regular savings accounts
Sometimes called traditional savings accounts, these are interest-bearing deposit accounts. They typically pay a modest interest rate, but they are a safe and reliable place to stash weekly or monthly savings, whether your savings goal is a vacation, car down payment, or building up emergency savings.
In partnership with a checking account at the same bank, a regular savings account gives you a source of liquidity when you need money quickly.
High-yield savings account
A high-yield savings account offers a higher APY than a regular savings account. Plus, it still provides the safety and reliability of a traditional savings account. It usually requires a higher daily minimum balance, but the funds are still readily accessible..
Student savings accounts
Savings accounts for minors fall into a few categories. Some banks offer kid-friendly savings accounts (jointly held with parents) that provide significant APYs along with educational components. A parent or guardian can also set up a custodial account for a minor child; deposits are subject to the annual gift tax exclusion of $18,000 for 2024.