A savings account is a key component of everyoneâ€™s financial life, but not everyone needs the same thing from their savings account. Weâ€™ve outlined the best savings accounts in several categories to help you find the right one for your preferences, whether thatâ€™s earning a high interest rate, dodging fees or getting great customer service.
To identify the best savings accounts, we looked for accounts with high yields, few fees and low to no balance minimums. We regularly check rates and accounts at over 200 banks and credit unions to stay on top of the latest offerings. Read on for details on the best savings accounts.
To find the best savings accounts, MagnifyMoney looks at over 200 financial institutions each week, from small community banks and credit unions to traditional brick-and-mortar banks to new online banks. Specifically, we consider the following factors when making our selections:
A savings account is a type of deposit account where you can stash money for any length of time, long or short. Banks and credit unions reward you with an attractive return on your savings balance â€” thanks to the magic of compound interest, your savings can grow steadily over time. Keep in mind that unlike checking accounts, savings accounts arenâ€™t designed to handle frequent transactions. Due to the Federal Reserveâ€™s Regulation D, you are (mostly) limited to six savings account transactions â€” deposits, withdrawals or transfers â€” per month.
While savings accounts give customers a safe place to stash their money, they serve a different purpose for financial institutions. Banks and credit unions use their customersâ€™ deposits to fund loans and other products. Banks charge borrowers interest on loans, which funds in part the interest you earn on your savings deposits. So when you open and fund a savings account, youâ€™re helping your bank fund its business.
The money you place into a savings account at a bank is generally protected by FDIC insurance, up to the legal limit of $250,000. This limit applies per person, per bank, per ownership category.
For example, you would receive full FDIC coverage of a $250,000 deposit made to a savings account at ABC Bank, and you would get full FDIC insurance on $250,000 deposited in a savings account with XYZ bank.
If ABC Bank went under, you wouldnâ€™t lose a dime of your deposit. The FDIC would either set you up with a new account at another FDIC-insured bank for the same amount as the closed account, or send you a check for the balance. However, if you had a $50,000 checking balance and a $250,000 savings account balance with ABC Bank, you would only receive $250,000 in total FDIC insurance for your accounts â€” with a potential loss of $50,000.
Credit unions rely on National Credit Union Administration (NCUA) insurance. The NCUA is an independent agency that maintains the National Credit Union Share Insurance Fund (NCUSIF), which funds deposit insurance payouts. All federal credit unions are insured by the NCUA. State-chartered credit unions are regulated by the state supervisory authority where the credit unionâ€™s main office is located, but they may also have NCUA insurance.
Money kept in a savings account is best left alone unless you absolutely need it. To maximize the return on your savings, stash most of your liquid cash flow in a savings account, and only keep the funds you need for day-to-day spending in your checking account. That allows your money to grow more efficiently â€” more money in a savings account means more interest earned and compounded.
How easy it is to move money in and out of your savings account depends on your financial institution. Typically, a transfer between deposit accounts goes through Automated Clearing House (ACH). ACH transfers should only take one to two business days to clear, often clearing immediately or within one business day. Some institutions, however, may take the full two days, depending on their own rules and regulations.
Keep in mind that savings accounts have a limit of up to six certain transfers or withdrawals per month, thanks to the Federal Reserveâ€™s Regulation D, or Reg D. This limit only applies to â€śconvenientâ€ť transfers and withdrawals made by â€śpreauthorized, automatic, telephonic agreement, order or instruction, or by check, debit card or similar order made by the depositor and payable to third parties.â€ť Less convenient transactions are exempt from this regulation, including withdrawals or transfers made in person at the bank or ATM, by mail or over the phone.
Making more than six transactions per cycle will often result in an excessive transaction fee depending on the financial institution. Exceeding the limit several times can lead to the bank closing your account for good.
Itâ€™s safe to say that everyone should have a savings account. If your moneyâ€™s going to sit in a bank account, it might as well earn interest while itâ€™s there. And if youâ€™re going to earn interest, itâ€™s surely best to find an account that earns the most interest possible â€” namely a high-yield savings account.
Even if youâ€™re not interested in chasing the highest possible interest rate, you should still have a savings account to keep your money safe. Some people donâ€™t trust banks and stash cash under their mattresses. But what happens if your house burns down or thereâ€™s a break-in? Stolen or lost funds are gone for good. Meanwhile, money in a savings account is kept safe by the FDIC, which even offers bank skeptics peace of mind as it ensures youâ€™ll get your money back no matter what.
If youâ€™re not sure which account to choose, consider your savings priorities first. If youâ€™re trying to reach a savings goal, a high-yield savings account will help you reach your goal faster than a lower-rate account.
Perhaps you want an account where you donâ€™t have to worry about fees. There are several fee-free savings accounts and accounts that donâ€™t charge for excessive withdrawals that would be perfect for your needs.
Generally, though, these two features should be your top priorities when applying for a savings account. A high-yield savings account grows your money more efficiently, and minimizing fees helps you keep it.
If youâ€™re looking at interest rates, thereâ€™s not much difference between the average savings accounts offered by banks and credit unions. In December 2020, the average savings account rate from brick-and-mortar banks earned just 0.06% APY, while credit unions had an average APY of 0.25%. But that doesnâ€™t mean you wonâ€™t find competitive rates at banks or credit unions â€” it simply means youâ€™ll need to shop around
The same goes with fees. A 2018 MagnifyMoney survey of 57 rewards checking accounts from banks and credit unions indicated that credit unions tend to charge slightly higher fees than their traditional bank counterparts. However, credit unions are nonprofits, and tend to charge fairer fees than big banks do.
For many people, the choice of bank or credit union is a matter of personal preference. When you join a credit union, it means that you own a piece of the institution along with its other members. With a credit union, thereâ€™s more transparency about how your deposits are being used â€” many people prefer to know that they are funding loans and helping other members, as opposed to paying big executive paychecks.
When it comes to physical access, banks usually have credit unions beat. Big banks have the money to spread their branches throughout the country, while credit unions tend to serve specific communities and locations. Still, credit unions very often partner with other credit unions and ATM networks to provide their members with widespread ATM access. Note that the CO-OP Financial Services credit union service organization has the second largest branch network in the United States.
A high-yield savings account is an easy way to boost your savings without any extra effort on your part. Letâ€™s say you have $5,000 in a 0.01% APY savings account, which is a typical rate from traditional, big banks. Assuming you donâ€™t make any additional contributions, in a year, youâ€™d earn a whopping 50 cents in interest. Thatâ€™s a pretty poor rate.
Switching that $5,000 deposit over to a high-yield savings account that earns 0.65% APY would yield $32 and change in interest annually â€” thatâ€™s definitely a sight better than 50 cents. Additional recurring deposits, perhaps monthly, would increase your savings even more. Setting up automatic recurring deposits is an easy way to turbocharge your savings.
Many deposit accounts charge a monthly maintenance fee, with the exception of online accounts, which seldom charge a monthly fee. The exact fee amount of a monthly fee depends on the bank and the specific account, but they can range anywhere from $5 to $15 a month. The good news is that thereâ€™s almost always a way to waive the fee. Typically, this means maintaining a minimum monthly balance or making a certain number of transactions per month.
Banks also often charge for returned deposits, overdrafts, excessive transactions, expedited delivery or transfers, incoming and outgoing wire transfers and paper statements. But if you avoid these items, youâ€™ll skip the fees.
Many of the best savings accounts are available online. By operating only over the internet, banks are able to save on the cost of owning and maintaining physical branches. Banks pass those savings onto their customers in the form of the high rates you see above.
But just because theyâ€™re online doesnâ€™t mean theyâ€™re any less secure than a well-known bricks-and-mortar bank. Reputable online banks offer FDIC insurance on your balances up to the legal limit. If youâ€™re unsure, you can use the FDICâ€™s BankFind tool to check a bankâ€™s insurance status.
As for online security, most banks employ the same security features as the big banks, if not more. This includes network and browser encryption, firewalls, anti-virus scanning and anti-malware protection. Banks may also offer additional safety features like two-step authentication, automatic logout, fingerprint identification and proactive account monitoring. You can always check a bankâ€™s exact safety features on its website, which applies to both online-only and brick-and-mortar banks.
You sure can. If you have a lot of cash on hand, opening multiple savings accounts can allow you to maximize your FDIC insurance. Think of the scenario mentioned above: Keep $250,000 in an ABC Bank savings account and $250,000 in an XYZ savings account. Dropping the total $500,000 in a single ABC Bank savings account would leave $250,000 uninsured.
Opening more than one savings account may also help you keep track of separate savings goals. For example, you can use one savings account to house your emergency fund, which you never touch except for in dire circumstances. Keeping your emergency fund separate from your other accounts may make it easier for you to avoid dipping into it.
If you do have more than one savings account, just make sure they all earn at competitive rates.
Unlike certificates of deposit, savings accounts have variable rates. This means that the bank can decrease or increase their rate at any point, often without notice. However, you can typically expect rate changes to happen on or right after the start of a month.
Deposit account rates often track the federal funds rate, which is set by the Federal Reserve. The federal funds rate establishes the rate banks and other financial institutions charge each other for lending. So when the federal funds rate is cut, banks tend to cut their own rates in response. This includes not only deposit rates, but loan rates as well. Conversely, banks boost their interest rates when the Fed raises the federal funds rate.
Keep an eye on the Federal Reserveâ€™s regular meetings to get a better sense of where the federal funds rate â€” and therefore your deposit rates â€” are headed.
If you earn $10 or more in interest in a year, then yes, your savings interest is taxable. Your bank or financial institution will send you a 1099-INT form documenting the interest youâ€™ve earned. Using that form, you include your interest earnings with your annual tax filing. The bank will also send a copy of your 1099-INT form to the IRS.
Even if you donâ€™t receive a 1099 from your bank, youâ€™ll still need to report interest earned on your tax return. Plus, if you earned more than $1,500 in interest in a year, youâ€™ll need to list out the sources of all that interest income on Schedule B of the 1040 Form.
Your earned interest is taxed according to your marginal tax bracket. If you earned $50 in interest and youâ€™re in the 22% tax bracket, youâ€™ll pay $12 in taxes on that interest earned.
Having a savings account is a crucial part of your financial life, but there are other types of deposit accounts that you can (and perhaps should) fit in, such as: