Savings accounts can be used for both short term and long term savings goals, although you may need to have more than one account in order to benefit most from interest rates and account features. Before shopping for a savings account, it’s important that you consider how often you’ll need to access the money in the account.
Certificate of Deposit: If you can commit to saving the money for a long period of time, you should choose a high interest certificate of deposit. CDs offer higher interest rates the longer you commit to saving, but most will charge you a penalty if you withdraw the money before the savings term has been reached. If you think you will need some or all of your money before the CD reaches maturity, you should not tie up all of your money into a certificate of deposit.
Money Market Account: Money markets offer higher interest savings than a traditional savings account and allow you to write a few checks each month or quarter. If you write more checks, there are fees associated with using the money. A money market is a good idea for savings that you only plan to access once in awhile, rather than a savings account that simply holds your money until you need it for every other purchase or expense.
Savings Accounts: Typically a savings account allows unlimited, fee-free access to the money deposited, and you earn interest based on how much you have saved.
There are 5 questions you should ask before opening a savings account to ensure you are selecting the right account:
-
How much interest is paid and how is it compounded? Find out what the annual percentage yield (APY) is. You want to find an account with the highest possible APY so you can compare accounts accurately between different banks.
-
Can I withdraw money whenever I want or is there a penalty for withdrawing money before a certain period?
-
Am I limited to making a certain number of withdrawals per month? How many can I make and what are the fees if I need to make more withdrawals than allowed?
-
Where are the local bank branches located? This is important to know if you plan on using your ATM card to withdraw money from your bank account. Find out what fees are associated with using your ATM card at other bank ATMs.
-
Are their any special deals or offers for opening an account right now? Banks regularly offer bonuses or rewards or incentives to encourage people to open accounts with their institution. Find out if the bank is offering anything at the moment and compare to what other banks are offering to determine which is the better deal.
