Choosing the right account starts with understanding what to look for in a savings account. Most people immediately think about account features such as interest rates, ATM availability, and FDIC insurance. However, before looking at those details, you should first answer one important question: What are you using this savings account for?
Personally, I do not use my savings accounts to build wealth. Instead, I use them as a way to set money aside for specific purposes. The cash I save each month for long-term growth goes into mutual funds or investment accounts, where I believe I can earn higher returns over time (and historically have). If you are still working on building your savings habits, you may want to start with some ways to save money.
Because of that approach, I look at savings accounts differently than someone who is using them as their primary investment vehicle.
With that in mind, let’s start with one of the most important features: accessibility.
1) Accessibility
You should always make sure you can access your money when necessary. However, the level of accessibility you want depends on the purpose of the account.
Some savings accounts place limits on the number of withdrawals you can make. Others are designed primarily for online access through platforms such as SoFi or Capital One 360. Some accounts are also located at the same bank as your primary checking account.
This brings us back to the key question: What is the purpose of this savings account for you?
Depending on your answer, you may actually prefer that these funds are not too easy to access.
For example, if your savings account sits next to your everyday checking account, it may be tempting to transfer money whenever you want. That can make it easier to dip into funds that were meant for something else.
I prefer to separate certain savings goals from my daily banking habits.
For example, I currently direct deposit money every week (I am paid weekly) into a SoFi account that I am using to pay off a specific credit card. I also deposit $250 per month into a Capital One 360 account for a future trip to Hawaii.
Separating these accounts helps me stay disciplined. It also works well when you are following a structured budget. Many people treat savings like a piggy bank they can access whenever they want, which makes it harder to reach financial goals.
2) Interest Rates
It is important to earn a competitive interest rate on your savings. This topic has become even more relevant recently because savings rates have been above 5% in many cases (update: currently most interest rates are around 3.25%).
For many years, savings accounts earned around 1% or less, which is one reason I do not rely on them for building wealth.
Another important factor is understanding how long a promotional interest rate lasts. Many savings rates fluctuate based on changes from the Federal Reserve.
For example, earlier this week the Federal Reserve lowered interest rates by 50 basis points (0.5%). Leading up to that announcement, I noticed many banks suddenly advertising very attractive savings rates.
Those banks likely knew interest rates were about to drop. As a result, some of those attractive rates may not last long.
Is that false advertising? I will let you decide.
Going back to my earlier point about when rates were around 1% or less, I would not recommend spending hours searching for the absolute best rate.
For example, the difference between 1% and 0.9% interest on $10,000 is only $10 per year.
If you spend an hour researching that difference, you may actually lose money based on the value of your time.
I always try to think about what my time is worth.
As another example, I could save a few cents per gallon by waiting in line at Costco for gas. However, that often means waiting 20–30 minutes. For me, that time is worth something, so I sometimes choose to pay slightly more for convenience.
3) Fees and Minimum Balance Requirements
I will keep this section simple. Ideally, you want a savings account with no monthly fees and no minimum balance requirements. Fortunately, many banks offer these types of accounts today.
There is no reason to pay unnecessary fees when so many good options exist.
4) FDIC Insurance
FDIC stands for Federal Deposit Insurance Corporation.
FDIC insurance protects your money if a bank fails. Most accounts are insured up to $250,000 per depositor, per bank.
If you ever find yourself with more than $250,000 in a single savings account, you may want to spread that money across multiple banks so all of your funds remain insured.
5) Account Features
Different savings accounts offer different features. For example, some accounts include overdraft protection, linked checking accounts, automatic transfers, or goal-based savings tools.
Reviewing these features can help you determine which account best fits your financial habits and goals.
6) Customer Service and Reputation
Finally, it is worth considering the bank’s reputation for customer service and reliability.
Reading reviews and seeking recommendations can provide insight into how satisfied current customers are with the bank. Good customer service can make a big difference if you ever run into issues with your account.
Conclusion
Ultimately, you want to make sure your money is FDIC insured and that you are earning a respectable interest rate.
However, the most important step is determining why you are opening the savings account in the first place.
You should also be honest with yourself about your spending habits. Are you quick to make impulse purchases? Do you sometimes spend money that was meant for other purposes?
If that sounds familiar, consider keeping your savings at a different bank than your primary checking account.
When your savings are not visible every time you visit the ATM, it becomes easier to leave that money alone and let it grow.
