Choosing the best savings account is crucial as this is where you keep and grow your hard-earned money. To determine the best savings account in the U.S., you need thorough research on which banks and credit unions will let your money grow faster, with the best interest-earning savings accounts that aren’t difficult to maintain.

Generally, you can decide if your bank offers you a great deal on opening a savings account using these three factors: annual percentage yields or APY, compounding method, and security. Read further to learn more and be guided about savings accounts.

What Is a Savings Account?

A savings account is a bank account that allows you to deposit and withdraw money while earning interest on your balance. Savings accounts offered by most banks and credit unions, and other financial institutions are usually FDIC insured. Some online savings accounts are generally high yield online savings with an APY that is more than 15 times the national average APY of 0.06%.

Types of Savings Accounts

Keeping your money through savings accounts ensures that your money is safe while earning a small amount of interest. The basic types of savings accounts are the following:

• Checking Accounts. These are accounts that are primarily used for daily purchases or paying bills via checks or online.
• Money Market Accounts. These are accounts that act like savings accounts but pay higher interest. However, they could require a larger initial deposit, with possible fees charged if your balance drops below the minimum balance requirements.
• Certificates of Deposit (CDs). These have the lowest liquidity while offering the best account rates among the three. You save money using CDs by purchasing one. The later your CD’s maturity date is, the higher the earning interest.

How to Choose the Best Savings Accounts

A good interest rate is one of the first things people consider when selecting their savings account. However, it should be more than that. Here are some tips on how you can choose the best savings account wisely:

1. Learn which benefits to look for. Banks offer a lot of benefits that vary from welcome bonuses to points accumulation.

2. The aforementioned factors of a great savings account, namely, high APY, compound interest, and security, should always be considered in order to find the best savings account for you. The annual percentage yield or APY refers to the interest you earn on your deposit in a year while taking the effect of compounding interest into consideration. A higher APY means more earnings you can expect on your deposit. Compound interest, on the other hand, is an interest that is paid on both the initial deposit and on any interest earned. The more frequently interest compounds on an account, the faster your balance grows. Finally, despite savings accounts being low-risk, it is crucial to consider their security by looking at FDIC-insured banks.

3. The top savings accounts are high yield savings accounts such as ones that Marcus by Goldman Sachs offer. You can earn up to 20 times more by choosing the highest-earning savings account. It is worth noting, though, that interest rates can change.

4. Be aware of the bank’s conditions and fees. Despite having the highest savings account rates, some banks have additional fees and requirements that you should read about.

Savings Accounts Frequently Asked Questions (FAQs):

How Does Savings Account Work?

A savings account works by circulating the money you deposit by loaning it to other people with higher interest than what they pay you. This way, they continue their business.

What is the Difference Between a Checking and a Saving Account?

Checking accounts are usually for everyday transactions. They have low interest rates. Savings accounts, however, are not meant to be used for daily transactions. They are intended to grow your money. Deposit accounts have withdrawal limits.

How Much Money Should I Keep in my Savings Account?

Financial experts recommend an amount of at least six months’ worth of your expenses deposited in your account.

How to Calculate Interest on a Savings Account?

For interest compounded daily, divide the simple interest rate by 365 and multiply the result by the balance in your account. Add the daily interest earned to the balance.

Can I Open a Second Savings Account?

There is no established limit on the number of savings accounts you can open. Opening the account does not hurt your credit score, unlike opening multiple credit cards at the same time.

Can you Pay Credit Card From a Savings Account?

No, you cannot pay a credit card using a savings account. Most banks don’t allow you to write a check or use a debit card to pay your bills. This comes with exceptions, though, such as using direct debit.

Want to save more money? Read ”7 Ways to be Frugal Without Being Cheap” to learn more.