The best savings accounts: What savers should know
by Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA
Choosing a savings account can seem like a pretty mundane task, but often it is one of the first and longest-lasting financial decisions a person makes. So, before you simply walk into the nearest bank branch and settle for what they happen to be offering, it’s helpful to know a little about your options.
After all, you would probably do a little research before shopping for a car, and over time you are likely to put more money into your savings account than into your car. So choosing a new savings account is not a decision you should make randomly.
Full List of Banks
Rates / APY terms above are current as of the date indicated. These quotes are from banks, credit unions and thrifts, some of which have paid for a link to their website. Bank, thrift and credit union deposits are insured by the FDIC or NCUA. Contact the bank for the terms and conditions that may apply to you. Rates are subject to change without notice and may not be the same at all branches.
As you can see in the table above, MoneyRates.com regularly monitors rates from more than 200 banks to highlight the best savings account rates. But as important as rates are – they are likely to be one of the central factors in your choice of bank – they are still only one component of a savings account.
To understand what else you might need from your savings account, it’s important to understand what part savings accounts should play in your finances.
Where savings accounts fit
A savings account should play an intermediate role between a checking account that you might access on a daily basis, and a long-term retirement account, which you shouldn't touch for many years. The following are some examples of how this intermediate role can come into play:
- Getting started with savings
- Saving for emergencies
- Saving for large purchases
What makes a savings account suited to these uses is that it can pay higher interest than a checking account because you won't be drawing from it as regularly, but at the same time, it will allow you ready access to
the money when it’s needed. Remembering the role of a savings account is important when evaluating the facets of a prospective savings account.
Evaluating a high-interest savings account
You might find savings accounts with attractive yields either online or through your local bank branch. Naturally, the idea of a high-interest savings account sounds good, but here are some things you should check on before you open one:
- The legitimacy of the institution.
- The extent of FDIC coverage. Make sure the institution is covered, and if you qualify for a high-yield savings account because you are making a very large deposit, make sure it does not put you over the limit for FDIC coverage, which is currently $250,000 per depositor, per institution.
- Any restrictions on your access to the money. A high-interest savings account may limit how often you can access your money. If you can live with those limitations, take advantage of that strong yield. But if not, look for a savings account that offers looser restrictions.
Some savings accounts also offer the option for an ATM card. This may sound like a nice perk, but before you opt for one, ask a couple of questions:
- If this account is for savings, is having easier access to it going to hurt your savings habits?
- Are you sacrificing a higher interest rate for the ATM card? If so, you might be better off with a conventional checking account for your short-term funds, while finding a high-interest savings account or money market account for your longer-term savings.
Evaluating your savings account options should start with understanding how you intend to use the account, and based on that, what features are most important.
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