Whatever your savings goal may be, whether it’s saving for your dream house, stowing money away for a rainy day, planning a dream vacation or simply a place to hold your extra cash, a savings account is an essential step to achieving your financial goals.
There are numerous types of savings accounts to choose from. Your money should always be liquid and easily accessible, no matter the option. In addition, your funds should be kept in a safe place, such as an NCUA-insured credit union or FDIC-insured bank.
Choosing a savings account isn’t as easy as walking into your nearest financial institution and opening one up. All savings accounts are not created equal. Each savings account type comes with varying features, perks and stipulations.
If you’re brand new to savings accounts or looking to make a switch, you should consider the following five factors when determining which savings account is right for you.
Competitive Interest Rates And APY
One of the main differences between savings accounts and checking accounts is the ability of savings accounts to earn interest.
Unfortunately, most savings accounts don’t come with an extravagant interest rate. According to the Federal Deposit Insurance Corporation (FDIC), the average APY for savings accounts was 0.06% during the first quarter of 2022.
Moreover, some banks may pay as low as 0.01%, while others may offer rates as high as 0.75%.
By way of illustration, let’s look at how some of these interest rates may look after saving $100 a month for a full year.
| Initial Balance | Annual Percentage Yield (APY) | Total Contributions | Interest Earned |
|---|---|---|---|
| $10,000 | 0.01% | $1,200 | $1.05 |
| $10,000 | 0.06% | $1,200 | $6.33 |
| $10,000 | 0.75% | $1,200 | $79.12 |
While the return on a traditional savings account is merely dollars over a 12 month span, having your money work for you is better than sitting in the account collecting dust.
When shopping around for a savings account, you may want to consider a high APY savings account.
A high-yield savings account will help your money grow at a faster rate, earning an average of 0.5% per year. While the interest earned from a high-yield savings account isn’t life-changing, when compared to the average savings account interest rate, it’s nearly eight times more.
It’s important to understand that financial institutions may often promote the APY over the simple interest rate due to compounding interest. With compounding interest, your account balance grows because of interest gained over time, and that amount also gains interest.
The basic interest rate and the APY are generally similar, especially when interest rates are low.
Account Fees
Most savings accounts come with fees. Some of the common savings account fees include:
- Annual or monthly service fee
- Low balance fees
- Inactivity fees
- ATM fees
- Excessive withdrawal fee
Fortunately, most fees associated with your savings account can be avoided by reading the fine print or being aware of your banking activity. For example, one way to avoid paying excessive withdrawal fees is by checking your withdrawal limit and making sure you don’t exceed it.
If you want to avoid paying fees, you may want to shop around to find an account with limited or no fees.
Arizona Central Credit Union’s You-Name-It™ Savings Account comes with no monthly service fees, and you can open an account with as little as $0.
Minimum Balance Requirements
The majority of savings accounts have strict minimum balance requirements. Minimum balance requirements are usually the lowest amount of money allowed in the account before a fee is assessed.
Minimum balance requirements may vary depending on the financial institution and the type of savings account. However, for a traditional savings account, the average minimum balance generally ranges from $300 to $500 with a fee of approximately $5.
Certain savings accounts may allow you to waive the fee based on various other requirements.
Ability To Make Automatic Transfers
Sometimes, the best strategy to build up your savings account is to use the “set it and forget it” technique. That is why finding a financial institution and savings account that allows automatic transfers may be beneficial to you.
When using this approach, it’s best to have a fixed amount of money transferred from your checking to your savings account each month. Depending on budget and savings goals, it may be a good idea to visit the transfer amount each month.
Federal Deposit Insurance
When searching for the ideal savings account for you or your family, you want to ensure the funds are federally insured by the FDIC or National Credit Union Administration (NCUA).
These agencies protect you from the loss of your funds in the event of bank failure or theft. The FDIC and NCUA insure up to $250,000 per depositor, per insured bank and each ownership category.
Choose A Savings Account That’s Right For You
When shopping around for the best savings account, you should look for one that puts your money to work, has little to no account fees, makes the funds liquid and easily accessible as well as stored away in a safe location, such as an NCUA-insured credit union or FDIC-insured bank.
Arizona Central Credit Union offers a variety of savings accounts tailored to fit your lifestyle and savings goals. Contact us for more information, or visit our Savings Accounts page to find the right account for you.
