Savings accounts offer security and liquidity. They also pay higher interest rates than checking accounts. And you have options in choosing one.
- Step 1: Realize that interest rates change. A bank that offers a high interest rate today may lower its rate in a few months. Your best strategy may be to make sure the money you put aside stays ahead of inflation.
- FACT: Funds in savings accounts in FDIC-insured banks are insured by the U.S. federal government for up to $250,000.
- TIP: Make sure any online bank you decide to deal with is federally insured. Also be sure that it is also a real bricks-and-mortar institution, with a verifiable address.
- Step 2: Do some research if you are interested in a high yield account. Get information about the required initial deposit, the rate of interest, the compounding method, the minimum balance required, whether the account can be linked to another bank, fees associated with the account, the number of transactions permitted, how deposits can be made, and options for withdrawing funds.
- Step 3: Look into a high yield savings account if you want an account that pays higher interests rates when you have larger balances. You usually cannot use checks with these accounts, but you may be able to link them to your checking account for deposits and withdrawals.
- Step 4: Consider setting up a passbook account if you want a traditional bricks-and-mortar bank savings account. The bank will furnish a booklet to record your deposits, withdrawals, and interest. Passbook savings accounts usually have few fees, and a low or no minimum balance requirement. They also pay a low interest rate.