What to look for in a savings account

Savings accounts are relatively straightforward: You deposit cash into an account, and as that cash accumulates, you earn interest.

But not all savings accounts are created equally, starting with that interest. The features of a savings account vary and so do the rules around minimum balances, account fees, deposits, withdrawals and rate tiers.

If you’re wondering how to choose a savings account that’s right for you—ideally one that carries a high interest rate and low requirements—this article will outline the important features of a savings account.

Look for these features in a savings account:

• Interest rate and APY
• Initial deposit requirement
• Minimum balance requirements
• Account fees
• Rate tiers • Accessibility and ease of use
• Supplemental savings accounts
• Other accounts and products

Interest rate and APY

Savings accounts earn interest—their primary benefit over checking accounts—but even so, the interest earned could be very little. The national average among savings accounts tends to be far lower than what is possible to earn. For example, a $10,000 balance with an interest rate of .1% APY would only earn $10 each year. However, high-interest savings accounts will earn many times that and a $10,000 balance could earn you hundreds each year.

A note on interest rates: Financial institutions will often advertise the Annual Percentage Yield (APY) over the simple interest rate, because it more accurately reflects the interest earned by taking into account compounding interest. With compounding, your account balance grows due to the interest over time, and that amount also earns interest. However, the basic interest rate and the APY are often very close, particularly when interest rates are low.

Initial deposit

Many financial institutions require some kind of initial deposit to create the account. These fees often range from $5 to $100 for standard accounts. There are accounts that don’t have any initial deposit requirement, leaving your account empty until you later choose to transfer money into it.

Minimum balance requirements

Many savings accounts have balance requirements, which is the lowest amount of money you must have in the account. This is typically assessed daily. If you drop below that amount, you may incur fees. Look for an account that won’t punish you for dropping below a minimum, but do keep in mind that financial institutions have the right to close accounts that aren’t being used.

Account fees

Common fees include low balance fees, annual or monthly maintenance fees, dormancy/inactivity fees and ATM fees. Sometimes these fees are waived if you meet certain requirements such as maintaining a minimum balance or having an attached checking account. However, some savings accounts don’t have these fees at all, which you should look for when considering a new savings account.

Rate tiers

Some savings accounts offer a higher interest rate when you meet certain qualifications, such as maintaining a high balance or signing up for direct deposit or automatic transfers. These tiers can make earning the best rate confusing, but can give you a higher interest rate than you might otherwise be able to find. Be sure to take note of any rate tiers, or find an account that doesn’t have any tricky requirements to meet.

Accessibility and ease of use

Another important feature of any savings account is its accessibility. Check into the process surrounding the savings account’s deposits, transfers and withdrawals. Also see if the account includes online banking, mobile banking (preferably an app that allows mobile deposits, and ATM access.

Supplemental savings accounts

If you have specific savings goals, such as a car, home, vacation or wedding, you may want to open additional savings accounts beyond a primary or emergency savings account. These accounts can be labeled with your specific savings goals and can be filled by one-time or recurring transfers. These can be referred to as supplemental savings accounts, savings buckets or savings envelopes. This is also a great digital budgeting method for those that like envelope budgeting or cash stuffing.

Other accounts and products

While you can have accounts and products across numerous financial institutions, being able to do all or most of your banking at one place can certainly make your life easier. When considering a savings account, it’s worth checking out other accounts and products that financial institution offers.

Sometimes, a savings account is all that’s offered. Other times, there may be a few other options, such as a checking account or a certificate. Ideally, there will be a full range of products, with everything from savings and checking to credit cards, auto loans, mortgages and more. With all these features to consider, spending time reviewing which account is best for you can make a difference in how much interest you’re able to earn and what savings account features you’ll have access to.

Looking for more banking tips? Check out these great posts:

• How to switch bank accounts seamlessly
• What’s the difference between banks and credit unions?
• 4 myths about online savings accounts