Comparing savings accounts: What’s the difference?

A woman compares savings accounts.
March 19, 2022 | Jamie Smith

Savings accounts are an excellent way to put a little money aside each month, but you still have access to it in case of an emergency. You don't have early withdrawal penalties as you do with retirement accounts, nor do you have to spend time liquidating stocks to get access to your money. 

Many people opt to open a savings account at their primary bank out of convenience. But is using the bank the best option for your money? Savings accounts differ, and some financial institutions offer better terms than others. So, how do you choose? Before opening an account, do some research. Explore the following helpful tips and features to look for so that you can compare savings account options. 

Check for the best interest rates 

Interest rates are one of the main reasons to compare savings accounts. Higher interest rates sometimes have more limitations, fees, or balance requirements. You may find that online financial institutions offer better interest rates because they lack the same overhead and expenses as traditional brick-and-mortar banks. 

Interest rates are important to consider because it can add up quickly, depending on how much money you deposit. For example, consider a savings account with $5,000. With an interest rate of 0.50%, you would earn $25 in a year, whereas an account with 0.06% would earn around $3. 

Be sure to ask whether the interest rate is fixed for a certain amount of time or whether it's a special introductory rate that will change quickly. Some financial institutions offer attractive initial rates to get you to open an account. Then the rate drops, and it's no longer competitive. 

Look for savings accounts with compound interest 

Another aspect of interest rates is whether the financial institution compounds interest. You want an account with compounding interest, whenever possible. You will receive interest on your initial deposit and any earning interest. Depending on the terms, the interest could compound daily, weekly, monthly, or annually. The more frequently the interest compounds, the faster your account will grow. 

Read the fine print and look for transaction limits

If you are thinking about opening a savings account, verify whether the financial institution limits the number of transactions. Before April 2020, Federal Reserve Board Regulation D (Reg D) limited certain types of withdrawals to no more than six monthly transactions. These withdrawals fall under a category called "convenient transactions." Due to the COVID-19 pandemic, the Federal Reserve removed the cap. However, some banks and credit unions still enforce the transaction limits. It's best to verify the rules of each potential account you're considering opening. If you don't plan to access the funds you deposit regularly, the cap may not be as important. 

Transactions limited under Reg D include: 

  • Phone transfers
  • Online transfers, including ones within the same financial institution 
  • Preauthorized transfers or auto withdrawals, such as recurring bill payments 
  • Checking overdraft transfers
  • Check or debit card transactions
  • Outgoing wire transfers

Other withdrawal transactions were not subject to the federal rule, including in-person transactions or a phone withdrawal that involves a mailed check. Even though the federal rule didn't govern these types of transactions, some financial institutions still implemented limits on "excessive" transactions, charging penalties for any withdrawals above the limit. 

You can keep from getting penalized for these transactions if you plan accordingly. Don't link auto payments to your savings; instead, link them to your checking account. If you are close to the transaction limit, go to an ATM or visit a branch and make the withdrawal in person. 

Calculate all potential fees and penalties 

When comparing savings accounts, you want to look at all the fees. Are there transaction fees, monthly maintenance fees, or fees if your balance dips below a certain amount? Calculate all potential costs, as you may not realize how many hidden charges you could incur over time. These fees may also include penalties if you exceed a certain number of transactions each month. Penalties can add up, so be sure you know in advance the amount you could get charged. 

Verify the minimum opening amount and monthly balance requirements

Some financial institutions require that you deposit a certain amount of money when you open a savings account. If you don't have a significant amount of money to put in a savings account, you may struggle to meet the minimum requirements. Other financial institutions also require that you maintain a minimum monthly balance. These minimum monthly balances can vary significantly depending on the institution. For example, one account might require you to maintain a $100 minimum monthly balance while another could be as high as $10,000 or $25,000. 

Consider monthly fees even if you don't plan on dipping below the amount. If you find yourself with an emergency, you may need to withdraw money without immediately replacing it. 

Confirm whether the financial institution is federally insured

While savings accounts are often low-risk accounts, it's still worth checking whether the financial institution is an FDIC or NCUA insured member. FDIC stands for Federal Deposit Insurance Corp. When you bank with an FDIC member, your balance gets insured by the maximum amount allowed by the law. The Federal Deposit Insurance Corp. (FDIC) protects you in the event of a bank failure, and the U.S. government fully backs it. Your account gets insured as long as your money is within limits and guidelines. Most banks and financial institutions are FDIC members, but a few are not. 

If you are looking at a credit union, the regulations are similar, but governed by different entities. The National Credit Union Share Insurance Fund (NCUSIF) is the applicable federal deposit insurance. The National Credit Union Administration (NCUA) administers the funds. In this case, the insurance is similar to FDIC coverage with protection for each depositor. 

Customer service counts too 

A financial institution could offer the best savings accounts, but their customer service could be awful. It won't matter whether you are getting higher interest or not paying transaction fees if you can't get assistance when it matters most to you. Look at reviews on customer service websites. If most reviews are negative, they could signal a big red flag that may make your banking experience undesirable.

Another customer service factor to consider in your decision-making process includes the ease of accessing your money. Is there mobile banking or online account access? How accessible are ATMs near where you live or travel? 

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