How Do I Pick the Right Savings Account?
So you’ve decided to commit to a savings plan, great! Now how do you figure out what kind of an account to open when there are so many different choices?
-Brick and Mortar* Banks with Online Accounts
It’s almost too much to choose from! Well today’s entry is designed to help you make a good choice. There are 3 man questions you need to consider when choosing a bank account and they are in order:
-What is the interest rate that the account pays?
-Is there a minimum deposit required?
-Is the bank FDIC* insured?
Because we’re talking about long term savings today, the best kind of an account is a Money Market Account. Money Market accounts pay the highest rate of interest* on the money you deposit (so you will earn the most!). Today many of these accounts pay as much as 4.75% interest annually. Interest rates on regular savings and checking accounts are much lower, generally in the ballpark of .5-1.5%. Storing your money in a regular (non-money market account) can cost you thousands of dollars in interest over a lifetime. So now we’ve decided, a Money Market account is the best for long term cash savings.
Next we want to find an account that doesn’t have a minimum investment. Lots of the higher paying Money Market accounts require you to have $5,000 or even $10,000 just to open the account. Since not many of us have that kind of money when we’re starting out, let’s take that option off of the list. To find the best Money Market account with no minimum deposit your best bet is to use an online bank.
Now, many people worry that putting your money in an online bank is risky…but that’s not true if it is FDIC* insured. The FDIC is a government agency that will insure all of your deposits (up to $100,000) and guarantee that if anything were to happen to the bank that your money would be returned by the US Government.
There are two other major advantages to online banks. First, they link to a checking account at your regular bank to shuttle the money back and forth. It only takes about 2 days to move the money, but in this case that’s actually a good thing. 2 days is short enough that you can get to the money if you really need it, but long enough that you wont be likely to spend the money impulsively (after all the key to saving is leaving the money there)! The second major benefit of online banks is they often give you a cash bonus for opening a new account ($25-$50) which can be a week’s worth of savings or more!
In tomorrow’s installment we’ll go over some of the actual banks out there and what advantages and disadvantages they have over one another. Hopefully today’s column gave you enough information to look around a little online and do some research of your own. As always, don’t hesitate to email in your questions, and see you tomorrow.
FDIC – The Federal Deposit Insurance Corporation which guarantees you don’t lose your money (up to $100,000) if anything happens at your bank.
Brick and Mortar – This is a term used to describe things that have a physical location (as in made of brick and mortar). So a bank you could walk into would be called a brick and mortar bank where a bank that existed only online would not.
Interest – Money the bank pays you to hold your money for you.