You’ll generally find a traditional savings account at big banks or local credit unions with brick-and-mortar locations. You likely won’t earn much interest compared to the national average — 0.46% according to the FDIC — but you will have ATM access to make cash deposits and withdrawals. Many of these accounts are limited to six monthly withdrawals, although ATM withdrawals may be excluded from that restriction.
A high-yield savings account, like a traditional savings account, is a secure option to store your savings, but it offers rates as much as 11 times higher than the national average. High-yield savings accounts are mostly at online banks, credit unions and neobanks (newer banks that offer all banking services online or through a mobile app). In this case, you must be comfortable managing your account online or using mobile devices.
A certificate of deposit, or CD, typically offers a higher interest rate than a savings account but locks your funds up for a set term. For example, you could buy a five-year CD and earn a higher rate than a typical savings account, but you can’t touch that money for five years without incurring an early withdrawal penalty.
This penalty requires you to forfeit all or a portion of your interest earned and typically range from 90 to 365 days’ worth of interest, depending on the CD’s term.
A money market account falls between a CD and a savings account in terms of interest rates and liquidity. Money market accounts typically have a higher minimum balance than a standard savings account and may offer some check-writing privileges. However, a money market account may require a much higher initial deposit than a savings account and can impose monthly fees if your balance falls below a minimum requirement.
It’s also common for a money market account to limit the number of transactions to no more than six per month before an excessive withdrawal fee is imposed.
What to consider when opening a savings account
The best savings account for you depends on your individual financial needs and preferences. But generally, these are the factors to look out for:
Interest rate and APY
The higher the rate, the better. The interest rate tells you how much the bank will pay you for depositing your money with it, and the APY indicates the amount of interest you’ll earn on your balance over the course of a year if interest is compounded.
The Federal Deposit Insurance Corporation, or FDIC, updates the average savings account APYs on its website on a regular basis. High-yield savings accounts offer APYs much higher than the average.
Alternatives to traditional savings accounts, such as money market accounts and CDs, may offer higher interest rates. But these accounts also come with drawbacks, such as higher minimum balance requirements or limitations on when you can withdraw funds.
Fees
Bank fees can diminish your savings potential. Even though they may seem insignificant individually, they can add up over time and work against your savings goals. Some banks — typically brick-and-mortar financial institutions — may charge monthly maintenance fees, which can sometimes be waived by meeting certain requirements. Other fees to look out for include ATM, foreign exchange, account closing and overdraft fees. Some banks even charge you a fee if your balance drops below a minimum threshold.
It’s best to avoid accounts with numerous fees. There are many banks and credit unions offering savings accounts without monthly fees or that offer rebates on out-of-network ATMs fees charged by third-party vendors. After all, every dollar that you avoid in fees will continue to grow with interest and add to your bottom line.
FDIC or NCUA coverage
Savings accounts at federally insured banks and credit unions are protected in the case of a bank failure for up to $250,000 per person, per institution and account category by either the Federal Deposit Insurance Corporation or the National Credit Union Administration. Most experts suggest limiting your savings account balance to no more than the coverage maximums in the event your bank files for bankruptcy.
Account accessibility
Access to a savings account varies depending on the financial institution. Some banks are online-only and don’t have physical branches. This works well if you’re comfortable banking in a completely digital environment, where 24/7 access to your account is available on a virtual basis.
Many of the biggest banks maintain a large number of branches throughout the country while offering mobile and online banking services using the latest technology. Such big banks, as Capital One and Chase, provide the convenience of online banking with the option to receive in-person assistance at a bank branch.
When researching a savings account, be sure to note what’s available via the bank’s mobile banking services and how many fee-free ATMs the bank provides.
Minimum account opening balance
The minimum deposit — how much money you’ll need to fund your savings account — varies between banks and can range from zero to $1,000 or more. Online banks usually have lower minimum thresholds as a result of lower overhead costs. Choose an account with a minimum initial deposit requirement that matches the amount of cash you have on hand.
Can you be denied a savings account?
Unfortunately, yes. Your application to open a savings account can be denied if negative information appears on a ChexSystems or Early Warning Service report. Both are consumer reporting agencies that document your banking history.
The types of negative information that may appear on your report include overdrafts, accounts left with a negative balance or evidence of churning — opening and closing accounts rapidly to collect new account bonuses. A bank or credit union may use negative information collected from any one of these reports to deny your application.
If your application has been rejected, the first thing you should do is contact the bank to find out why. You may need to submit more personal information or dispute inaccurate information returned by ChexSystems or Early Warning Service. If possible, correct the negative report by addressing any outstanding issues with accounts at other financial institutions before proceeding with a new savings account application.
The bottom line
Opening a savings account is a great way to grow your money while keeping it safe. Using a savings account to establish an emergency savings fund or reach a short-term goal is ideal because these accounts provide flexible access to help you accomplish your savings goals faster.
Look for FDIC or NCUA coverage and the highest APY available while avoiding fees. Though savings accounts are an essential component of any savings strategy, there are additional types of savings accounts that offer different features to fit a variety of savings goals.
Correction: An earlier version of this article was assisted by an AI engine and it misstated the full name of the FDIC. It is the Federal Deposit Insurance Corporation. This version has been substantially updated by a staff writer.
