6 Ways to Choose the Right Savings Account for Your Needs
October 24, 2023
Savings accounts are the best way to earn interest on your money while also keeping it safe in a secure location. With a savings account, your money is in a liquid state. This means you can access it and use it whenever you want.
This way, these types of accounts are best for keeping your savings and daily spending separate. However, there are multiple types of savings accounts, each one with a different interest rate and range of benefits. So, the question is, how do you choose the right one for your needs?
In this article, we have listed some top tips you can follow to choose the best savings account that aligns perfectly with your financial needs and future plans.
1. Understand Your Financial Goals
Financial goals are different for everyone. While you may want to save money for your child’s educational future, someone might be saving it to buy a home. Therefore, it is advised to first understand your financial goals.
This will enable you to save in the right way and choose an account that provides the right benefits for your needs. Ask yourself questions like:
- Are you saving for some short-term goal like buying a car or going on a vacation? OR
- Are you saving for long-term goals like retirement?
These questions will provide you with a clear understanding of your financial needs and guide you towards a type of savings account that is well-suited for your needs.
For example, for short term goals, you will need to find an account that provides easy accessibility. On the other hand, for the long term goals, you will need to find an account with a higher interest rate. In this context, you will have to explore savings accounts with the highest yields and then choose the one that is best among all.
2. Assess Your Risk Tolerance
While it may seem like an unnecessary aspect, it will greatly affect the interest rate you get from your money. The risk tolerance means how much risk you are ready to take with your money. For example, choosing a traditional savings account with a fixed interest rate will give you stability and security.
In this type of account, you will have less risk and a constant benefit. On the other hand, if you go on to explore high-yield savings accounts, you will have to compromise for a certain period because such accounts give you higher interest in exchange for locking your money for a specific time.
So, consider how much fluctuation you can tolerate with the interest rate on your money. This will determine the type of savings account you will need to go with.
3. Compare Interest Rates
Interest rate is probably the biggest factor contributing to the selection of a savings account for personal or family needs. The interest rate is the percentage of profit you get on your money. So, when you are researching for a savings account with a high interest rate, also be sure to ask them the stated rate and annual percentage yield on your account.
The higher the annual percentage yield, the more rapidly your money will grow over time. Just keep in mind that the interest rates can change in the future when you are not choosing fixed deposits. If you want a fixed interest rate, you will need to find an account that will lock your money for a specific period, as mentioned above.
4. Evaluate Fees and Additional Charges
In case you do not know, there are some fees and additional charges associated with every savings account. This fee can be deducted on a monthly or yearly basis and can include maintenance fees, ATM fees, and any other additional charges.
Obviously, most people don’t want any fees associated with their savings accounts. To ensure this, take your time to read the documentation provided by the bank or financial institute and understand their fee structure. You can also ask them about the types of fees included in the type of savings account you are considering.
To make a final decision, consider your banking habits. For example, if you are the one who frequently withdraws cash or uses ATM services, you will have to go with an account with no ATM or withdrawal fee.
5. Accessibility and Convenience
How you can access your money is an important consideration when choosing a savings account. Not every type of savings account offers 24/7 accessibility to funds. Some accounts have restrictions regarding how many transactions you can perform during a month.
This can be a deciding factor if you are the one who needs to access your funds regularly. Moreover, the convenience of accessing your funds also matters. To avail this convenience, you must opt for a bank with local branches all over the state.
Moreover, choose a banking institute that provides the facility to access your funds online through a banking app. This will enable you to make funds transfers whenever you want. Additionally, consider the availability of ATMs so you can make the necessary withdrawals anytime.
6. Check for Deposit Insurance
If you want to secure your funds in a savings account, you will need to ensure that your account is insured properly by the national institutions for deposit insurance. Under this type of insurance, you can be assured that your funds are protected in case of any mishaps or unavoidable circumstances.
However, the insured money in your account has a certain limit. In case any financial uncertainty happens to the bank or credit union, your money will stay protected to that limit. So, before you finalize a bank to open your savings account, it is advised to check if it is insured by the federal institutions.
You can either ask this from the bank staff or visit their website to find more information on the insurance of savings accounts.
By following these tips mentioned above, you can choose a high-yield savings account that perfectly fits your financial needs and goals.