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How to Compare Savings Accounts

Key takeaways

  1. Annual percentage yield (APY) is an important factor when comparing savings accounts because it reflects true earning potential including compound interest

  2. Monthly fees, minimum balance requirements, and withdrawal limits can impact savings growth. However, many banks offer ways to avoid fees through direct deposit or linked checking accounts

  3. Consider accessibility features like mobile apps, ATM access, automatic transfers, and customer service when choosing an account

Financial institutions offer various types of savings accounts, usually in combination with checking or other accounts. Depending on the institution, these accounts will have different features and benefits, so in this article, we'll share 10 savings account terms and features you should take into consideration when you're looking for the best savings account for your goals.

1. Interest rates and APYs

One key factor in comparing savings accounts is the interest rate they pay. Banks often advertise a savings account's annual percentage yield (APY). This figure is slightly different than the account’s interest rate because the APY represents an annualized rate return on an account over one year, accounting for the effects of compounded interest.

Many banks pay compound interest for savings accounts, which means you earn interest on all the interest that has accrued before.

While you do want to compare the interest rates, and understand whether they're variable or fixed, annual percentage yield (APY) gives you a more accurate calculation.

2. Monthly fees and account charges

If your goal is to have your money grow, watch out for savings account fees and charges that can easily eat up any interest you may be earning.

Some typical fees include monthly maintenance, ATM fees, overdraft fees, and penalties for excessive withdrawals.

Good news: Most banks give you ways of avoiding fees like these by, for example, maintaining minimum balances or linking a checking account to the savings account.

3. Minimum balance requirements

Banks often require a minimum opening deposit for a savings account, the amount of money you need to start an account. This might be anywhere from $10 to $100, but some banks don't even require a minimum opening deposit.

There may also be minimum balance requirements, or an amount of money you need to keep in the account to avoid maintenance fees and earn the expected APY. Be sure to ask if the bank has any requirements regarding minimum balances to the savings account.

4. Account accessibility and withdrawal limits

If you read the terms and conditions of a savings account carefully, you may find out that there will be withdrawal limits and transaction restrictions.

For example, you may be allowed a certain number of withdrawals within a statement period; otherwise, you may incur a fee. Types of transactions that may be limited include:

  1. Online transfers to another institution

  2. Transfers initiated over the phone

  3. Overdraft transfers to savings

These limitations may be overcome by choosing the appropriate savings account for your needs, linking a checking account at the same institution, and using digital banking tools.

5. Deposit options

You can put money into a savings account using direct deposit from your employer, depositing cash or checks, or transferring money from other accounts at your branch bank or online.

Transferring funds from a different institution may take longer and could even incur a fee, so take that into consideration if you're thinking about opening an account at an online bank and will want to transfer funds to a checking account at a branch-based bank.

6. Compound interest frequency

When you compare savings accounts, ask whether it pays simple interest or compound interest. Many banks still offer simple interest accounts, but they are not as common as compound interest these days.

Remember, compounding means you are earning interest on the interest you are already accruing. Compounding can be daily, monthly, or quarterly. The more frequently interest is compounded, the faster it can grow.

7. Online vs traditional savings accounts

Both branch banks and online banks offer savings accounts with attractive APYs. This really boils down to personal preference and whether you are comfortable doing all your business online or would like to occasionally visit a branch, where you can speak to a bank representative, transact other business, and use their ATMs.

8. Extra features and benefits

What else might a savings account provide? Here are a few examples of features and benefits.

  1. An ATM card for withdrawals and deposits 24/7 

  2. Online access and a mobile app

  3. Automatic direct deposits and transfers

  4. Availability of Zelle® to facilitate quick money transfers

9. Safety and security

The Federal Deposit Insurance Corporation (FDIC) ensures the safety of your account at insured banks.

Your money is insured to at least $250,000 per depositor, per ownership type, per institution. Banks also employ physical and digital security measures to protect your deposits.

10. Customer service and reputation

Some things to look for are 24/7 chat or phone help, easy ways to get in touch, a welcoming atmosphere when you visit a branch, branch hours that correspond to your schedule, and a willingness to take time to speak with you and explain things.

FAQs

There are several important factors to consider when comparing savings accounts.

The APY, or annual percentage yield, will tell you how fast your money will grow. It’s also important to look at potential savings account fees, withdrawal restrictions, and accessibility to your funds.

Yes. Many banks offer quick online applications. Fill out the required information, select the account type, fund the account, and set up online access.

Many banks allow customers to open multiple accounts. You can designate accounts for special purposes, such as education and medical expenses, or emergencies, like an unexpected car or house repair. You can also have accounts at multiple institutions; you just have to keep track of them and fund them adequately to avoid fees.

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Checking vs. Savings? Make the Most of Both Accounts

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