There are 1,040 savings accounts, money market accounts, and CDs
that may meet your needs for an FDIC-insured savings vehicle. If you need an account to deposit and withdraw money at will, then you’ll want to focus on regular savings accounts and money market accounts
. On the other hand, if you are comfortable sacrificing liquidity to earn a higher yield on interest, a certificate of deposit (CD)
might be your best bet. Our tool makes it easy to compare more
interest rates for all your options. Remember that all savings accounts limit the number of phone and computer withdrawals you can make per month. A checking account
is a better fit for paying bills and managing monthly expenditures. Want to learn more about savings account options? We have useful tips in the Expert’s Answers section below. less
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- You'll need your checkbook in order to make your first deposit electronically from your existing checking account. This will create an electronic link between both accounts so you can easily transfer money.
- Get the best rate they offer for your CD term with the Ally Ten Day Best Rate Guarantee.
- You need to have a checking account in order to receive premium rates on Plus CDs.
- You can fund your CD account online from an existing bank account.
Ask our Experts
Why Open a Savings Account?
When it comes to saving, traditional bank savings accounts are about as plain-vanilla as it gets. But for many people, vanilla is the perfect flavor. Savings accounts are one of the safest places you can put your money. That’s because bank deposit accounts are federally insured by the Federal Deposit Insurance Corporation (FDIC), and credit union deposit accounts are insured by the National Credit Union Administration (NCUA). In other words, if your bank or credit union fails, you can count on getting your money back, up to a limit of $250,000 per depositor, per institution. There are a few exceptions to this rule, so if you don’t see the FDIC or NCUA logo displayed anywhere on a bank’s website or at a branch, ask about it. And if you already have $250,000 deposited at a particular bank, you’ll want to find a different bank to open a new account.
Are there other savings vehicles that are just as safe? Sure. CDs and money market accounts are also insured bank products. U.S. treasury notes, bills, and bonds are not insured, but they are backed by the “full faith and credit” of the U.S. government, and are considered risk-free from a credit perspective.
But what about liquidity? Savings accounts allow you to withdraw as much of your money as you want, pretty much whenever you want, without having to wait for the account to reach maturity. This type of liquidity is critical for people who wish to use their account as an emergency fund to pay for surprise expenses, or who are preparing for a large purchase but do not know exactly when it will occur. One caveat: savings accounts are restricted to no more than six withdrawals per month. That restriction is imposed by the Federal Reserve Board, so it will not vary from institution to institution. If you go over that limit, the bank will charge a penalty. If you go over that limit repeatedly, your account could be shut down.
Savings accounts also offer plenty of flexibility. In general, you should expect that higher interest rates will be offered for accounts with higher minimum balances, and that dipping below a minimum balance will incur a fee. That said, it’s not difficult to find a savings account with no minimum balance and no monthly fees. This flexibility makes savings accounts appropriate for a wide range of different needs, from parking large sums of cash for an indeterminate period of time to starting a nest egg with just a few dollars. A no-fee, no-minimum savings account is a popular tool for teaching children to save, because no kid wants to see bank fees chewing up his allowance. If you shop around, you’ll also be able to find savings accounts that offer ATM cards, checks, and rewards programs. And of course, online service is a given.
Then again, not everyone wants all the frills. In an increasingly complex world, many people want to keep their finances as simple as possible. Savings accounts offer a simplicity that’s hard to find in other places. You go to a bank, you open an account, you put in your money, you let it grow—albeit at a snail’s pace, and you take it out when you need it.
Savings Account Interest Rates: Why Are They So Low?
Yes, savings account interest rates are low. In fact those rates are low in three distinct ways. They’re lower than the return on other investments, they’re lower than the interest rates charged by lenders, and they’re even lower than the interest rates on the savings accounts of years past. Why is that?
- The risk/reward ratio: It helps to think of an interest-bearing bank account as a type of investment. And one of the basic rules of investment is that the higher the risk, the greater the potential reward. Because savings accounts are essentially risk-free, the interest rate (i.e. the return on investment), is always going to be lower than what riskier investments—such as stocks and real estate—have the potential to offer.
- Interest margins: As a rule, the interest charged by lenders will be higher than the interest paid to depositors. Banks are in the business of making money, after all, and one of the ways they do that is by charging more for the money they lend than what they pay for the money they borrow.Credit unions are not-for-profit organizations, so in general, they pay higher rates of interest to depositors and charge lower rates of interest on their loans. Even so, they need to maintain their interest margins at a certain level in order to stay in operation.
- Intervention by the Federal Reserve: When the financial crisis that ushered in the Great Recession began in 2007, the Federal Reserve responded by lowering short-term interest rates to almost zero and by taking steps to reduce long-term interest rates. The underlying idea is that when interest rates are low, it’s easier to borrow money to make purchases and investments, and that boosts economic growth. Since then, however, economic growth has been slow and interest rates have stayed at bargain-basement levels. It’s great if you happen to be a borrower, particularly if you’re in a position to take out or re-finance a mortgage. It’s not so great if you are trying to maximize your earnings on an interest-bearing deposit account.
The Federal Reserve reports that before it considers raising interest rates, it will wait for signs that the economy is heating up—indicators such as increases in employment and inflation levels. In the meantime, savings account holders should get comfortable with those tiny yields.
How Can You Get the Most from Your Savings Account?
Whether interest rates are high or low, it always makes sense to take a close look at what different accounts are offering before you make a choice. But what questions should you be asking? Here are a few ideas.
- What are the online-only accounts offering? The common wisdom is that when banks are able to take on new business without having to build and staff new branches, they pass the savings along to the customer in the form of higher yields. And indeed, a perusal of the best rates out there will often include a large proportion of online-only accounts. If you haven’t yet looked into online-only banking, now would be a good time.
- Will introductory rates provide a real advantage? Plenty of banks are trolling for new business, and some of them are offering introductory rates on their savings accounts. These special rates may be substantially higher than what you can find elsewhere, but they only last for a fixed period of time—a few months perhaps—before dropping to a less favorable level.The post-introductory interest rate may be much lower than the regular rate offered by other banks. You’ll need to do some calculations to make sure that you can really come out ahead by opening an account with a special introductory rate.
- What banks are offering cash rewards? Do they pass the sniff-test? Some banks want your business so badly they’re willing to pay you cash for it. Let’s say you open a savings account with $100 and you’re immediately given a $50 cash reward. That represents a 50% rate of return before the interest clock even begins ticking. Who wouldn’t want that?These offers are tempting, but keep in mind that banks aren’t stupid. Maybe they’re gambling on the chance that once you’re in the door, you’ll bring them more lucrative business in the form of home loans and credit cards. There’s nothing wrong with that. On the other hand, maybe the account is structured to nickel-and-dime you with fees and penalties until the bank gets its $50 back, and then some. Or maybe the interest rate is so low that you’ll lose in the long run. Read the fine print, take a look at how you plan to use the account, and then decide if the cash reward will work to your advantage.
Can you use your savings account as overdraft protection?
With the widespread use of debit cards, ATMs, and automated payment systems, it has never been easier to lose track of your balance and overdraw your checking account. In the old days, if you didn’t have enough money in your account to cover your check, it would “bounce”—that is, it would be returned for insufficient funds. That would result in major embarrassment and penalty fees from both your bank and the recipient of the bad check (e.g., a landlord, a merchant, etc.).
Today, though, most banks are happy to provide overdraft protection by covering your insufficient funds for a fee, often in the range of $30 to $35 per overdraft. That can really add up. As an alternative, many banks will allow you to link your savings account to your checking account so that if your checking account runs out of money, additional funds can be drawn from your savings account. This added cushion might end up saving you more money than an extra interest rate point or two.