How to choose a savings account when you're overwhelmed by options

Liz Knueven

Mar 1, 2020, 21:50 IST

How to choose a savings account when you're overwhelmed by options

Choosing the right savings account is surprisingly simple.

The right savings account is one that helps your money grow, and has the features you want, whether that's the highest interest rate or a good mobile app.
You'll also want to read the fine print to make sure there aren't any fees for regular activity that you don't want to pay.
But, remember that there isn't too much pressure here: A savings account isn't invested, so can get your money any time without long-term commitment.
See Business Insider's picks for the best high-yield savings accounts »

Most everyone can use a savings account. While your checking account should be a pit stop for your money on the way to the next place, a savings account is a holding cell for your cash until you're ready to spend it on your goals. It's liquid, accessible, and a safe place to keep the money you might need in the next few years.

That said, there are a lot of options for savings accounts. They're offered by a variety of institutions, from traditional brick-and-mortar banks to online-only banking service - and they're all a little different.

For a starting point on your savings account research, Business Insider compiled a list of the best high-yield savings accounts available. They're all fee-free, and sorted by several factors, including highest interest rate, easiest to use, and best overall.

There are a few things you'll want to consider to figure out which savings account you should open:

1. Decide how you'll use it

First, determine how you want to use the money you're saving. Because they're liquid, savings accounts are great places to build emergency funds. They're also ideal for down payment savings for a future home purchase, especially if you're planning to buy in the next few years. Other uses for high-yield savings accounts include saving for travel funds, pet expenses, or home repairs.

If you're saving for multiple goals, it might be worth finding a savings account that that allows you to create goals within the account. Ally's high-yield savings account, for instance, allow you to make buckets for your savings, and it can be helpful for anyone who wants to work towards multiple goals at once.

Also, you'll want to make sure that you don't need to move the money around too much. As a general rule savings are better left alone, but withdrawals from savings accounts are limited to six per month by federal regulation. If you think you'll need to make withdrawals more than six times per month, you might want a cash account - like those offered by Wealthfront and Betterment - instead. While it's technically a different product and therefore isn't subject to the six-withdrawals-a-month rule, it functions virtually the same as high-yield savings.

Finally, consider how long you plan to save - if your goal is more than five years away, you might want to invest your money instead.

2. Figure out what's important to you

If you really value a good mobile experience and ease of access, you might choose a bank with a great mobile app. If customer service is important to you, you'll want to choose a bank known for excellent customer service. If you really need to have the best interest rate out there, you might skip right to the account with the highest APY.

What you want from your experience will be a big factor in which bank account is right for you. Take a few minutes to think about what features your ideal savings account includes.

3. Decide whether you want to use your existing bank

You might want to consider where you keep other savings and checking accounts. Do you want your new one to be easy to access and in the same place as your other accounts? If so, making a savings account at the bank you already use might be ideal. But, if you think that easy access means you'll be tempted to spend it, you might want to put it somewhere else.

4. Consider interest rates

When it comes to savings accounts, take a close look at high-yield savings accounts. These savings accounts are the same as a traditional savings, with one key difference: They allow your money to grow with much greater interest rates than traditional accounts.

Traditional savings accounts do earn interest, but generally very little. According to the FDIC, the average savings account has a .09% interest rate. A high-yield savings account will help your money grow much faster, earning 1.5% to 2% interest per year. This isn't the kind of growth that will earn you a fortune, but consider it compared to the average savings account interest rate - it's up to 20 times more.

Its worth noting that interest rates can change, generally alongside the Federal Reserve's prime rate. So while interest rate is important, a few tenths of a percent shouldn't be your sole reason for choosing a savings account.

5. Read the fine print for fees

If you tend to glaze over the fine print, now is the time to break that habit. Read the disclosures and terms of the account you're considering opening. Look for:

Minimum balances or deposits: You may need to keep your account above a certain balance to avoid fees, or need a certain amount to start the account. If these things don't line up with your expectations, you might want to keep looking - plenty of banks offer savings accounts with no minimum balance required.
Any monthly fees: Having a monthly maintenance fee on your savings account almost defeats the purpose. After all, you want your money to grow here. There are many fee-free high-yield savings account options out there.

6. Don't put too much pressure on your decision

If you're having trouble deciding, the good news is that you probably can't go too wrong. As long as you open an account with a reputable bank that earns high-yield interest and that doesn't have any monthly fees, chances are you have a good account.

There's not too much pressure here, as you'll be able to access or move your money any time, and there's no long-term commitment. Plus, you can open as many savings accounts as you'd like, so you're not tied to just one.

There are lots of great options for savings accounts these days. Find one that you know you'll use and love, and that's the best option for you.

Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.

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