Best Savings Accounts in the US
There are many ways to earn passive income, but only one requires the least involvement on your part — a savings account. Unfortunately, the Federal Reserve’s policy of low interest rates still reigns supreme, so you can expect your annual percentage yield (APY) to not move beyond 1.3%.
However, depending on the size of your principal, such APY is still better than what you would yield with a transactional or checking account. To find out which of the banks provide the best return on your saving, read on for the criteria by which to evaluate them.
What is a Savings Account?
Emerging from the partnership between the federal government and financial institutions, savings accounts serve two distinct purposes. You get to place your money into an insured and heavily guarded financial institution, while the bank gets to use your money to facilitate its clients with loans and other services.
In addition to providing your hard-earned money with safe storage and making it possible to access it without going directly into the bank, the institution gives you a small interest rate in return.
Types of Savings Accounts
Although there are more specialized savings accounts, the two most common are:
Basic savings account. Without extra bells and whistles, this is the default savings account that just allows you to deposit your money and earn an interest rate. In most cases, withdrawals from it will be limited to about six times per month; however, this doesn’t apply to in-person transfers, which are unlimited.
Online savings account.
With the advent of Fintech, brick and mortar banks have only recently begun to offer online savings accounts. As a self-service platform for tech-savvy clients, such accounts are beneficial for people who don’t require access to a retail space, prefer zero-to-low maintenance fees, and seek no minimum balance requirements. Ultimately, one of the most important considerations is the bank’s mobile experience. After all, it will serve as your virtual home for your money. Currently offering a 1.21% interest rate and requiring no minimum balance, Varo may be that highest-earning savings account you were looking for.
Other savings account combos are money market accounts (MMAs), certificates of deposits (CDs), and various customized savings accounts depending on each bank, such as student or retirement accounts. MMAs are a solid choice if you want to use a debit card, but not too frequently. CDs yield higher interest rates, but you would have to lock in your money for a long period of time; otherwise, you would be penalized on withdrawal
How to Choose the Best Savings Accounts
Although all savings accounts are FDIC-insured, picking an established bank with deep pockets is the best way to ensure access to your money at any time. Moreover, they will likely offer a great online experience in the form of highly-rated mobile apps and customer support. One such bank is Marcus by Goldman Sachs, with a 0.60% APR.
Interest rates above 1% are exceptional, so you may want to look for compound interest rates, which accumulate money on both your principal and the interest it accumulates. You will find compound interest rates with MMAs and CDs.
Next, figure out if your bank’s fee structure is aligned with your lifestyle. Do you really intend to keep the deposits as an emergency fund, or do you want to make more frequent withdrawals? Some banks and credit unions offer more frequent monthly withdrawals than others without incurring additional fees.
Lastly, if you are in it for high yield online savings accounts, pick Ally bank or Varo, with their excellent interest rates.
Savings Accounts FAQ
How does a Savings Account Work?
The best way to learn is through practice. Use this calculator to select the parameters of your account — starting principal, interest rate, contribution — and in seconds, determine how much you can actually accrue by earning interest.
What is the difference between a Checking and a Savings Account?
Savings accounts are intended to accommodate a lower number of transactions; hence, you could incur fees if you withdraw from them too frequently. Savings accounts also offer higher interest rates. Checking accounts, on the other hand, have unlimited transactions through debit cards, and very low-interest rates.
How much money should I keep in my Savings Account?
Depends on how much you wish to save in a given period of time. Use the above calculator to determine this precisely based on your life’s goals.
How to calculate interest on a Savings Account?
You should use the calculator cited above—but you can also simply divide the interest rate by 12 (if earned monthly) and multiply it by your account balance. For a daily interest rate, instead of 12—divide it by 365.
Can I open a second Savings Account?
Yes, as many as you need.
Can you pay a credit card from a savings account?
No, savings accounts are not for spending or sending payments.