Introduction
Choosing a savings account that earns the most money is essential to build up a comfortable retirement fund or emergency savings account. However, it is just as important to understand which savings accounts will earn you the least money. In this article, we will explore the various factors that impact savings account returns, so you can make an informed decision before opening an account.
Compare Interest Rates
The first and most critical factor to consider when opening a savings account is the interest rate. Interest rates dictate how much a bank will pay you to hold your money in their savings account. Some savings accounts offer high-interest rates, while others offer significantly lower rates.
Therefore, it’s crucial to compare interest rates across different banks and savings accounts. For instance, online banks and credit unions often offer higher interest rates than traditional brick-and-mortar banks. Moreover, many savings accounts offer tiered interest rates, meaning you’ll earn more interest if you deposit more money in the account.
As a general rule of thumb, a higher interest rate means a higher return on your savings. Therefore, you need to compare rates carefully to avoid losing money over time.
Consider Fees
Another essential factor to consider when comparing savings accounts is fees. Banks often charge fees to maintain your savings account, which can erode interest gains. For example, monthly maintenance fees, ATM fees, and transaction fees are common charges associated with savings accounts.
Therefore, it’s essential to compare fees across different savings accounts before opening one. Some banks waive fees if you meet specific account requirements or maintain a minimum account balance, so it’s worth shopping around to find these deals. Additionally, ask your bank to waive certain fees if you believe they are unjustified.
Look for Promotions
If a bank offers a promotional offer, you may get a high-interest rate for a limited time when you open a savings account. Some common promotions are sign-up bonuses, referral bonuses, and introductory interest rates.
However, make sure to read the fine print before signing up for a promotional offer. For instance, some banks may require you to meet a minimum deposit or maintain a particular account balance to qualify for the deal. Additionally, some banks may automatically enroll you in a higher-fee account once the promotional period ends.
Therefore, it’s essential to compare longer-term returns and potential fees associated with a new account, especially after the promotional period ends. Always ask your bank about the full terms and conditions of a promotional offer before making a decision.
Assess Penalties
While savings accounts offer low-risk investment options, they also come with penalties if you withdraw your money too soon. Banks often charge an early withdrawal penalty if you try to withdraw your money before a specific period has elapsed, usually six months. These penalties can be substantial and could wipe out any interest gains earned with the account.
Therefore, before opening a savings account, make sure to inquire about the bank’s early withdrawal penalties. If you’re unsure whether you’ll need access to your savings before the penalty period ends, consider opting for a different account or investment option.
Check the Account Requirements
Some savings accounts come with restrictions on how you can use your account or require you to maintain a minimum account balance. Others may require you to deposit a specific amount or utilize linked accounts to waive monthly maintenance costs.
Therefore, it’s essential to check the account requirements before opening a savings account. Ask yourself if you can maintain the account balance and meet any transaction restrictions associated with the account. Evaluate what it would take to keep the account in good standing, including the fees charged for failing to meet any requirements, and adjust your habits accordingly.
Understand Compounding
Lastly, it’s essential to understand compounding and how it works when finding the savings account to prefer. Compound interest refers to the interest earned on both the principal and the accumulated interest balance. In other words, you earn money on the money you’ve already earned.
Therefore, it’s critical to look for savings accounts that compound interest frequently, which means you’ll earn more money over time. For instance, daily or monthly compounding options are preferable to annually compounded interest. Ask the bank about their compounding frequency before opening a savings account.
Conclusion
Several factors can impact the amount of money you can earn on a savings account. By taking these various factors into account, you can avoid earning the least money on your savings. Therefore, we advise that as you choose a savings account, compare interest rates, consider fees, look for promotions, assess early withdrawal penalties, check account requirements, and understand compounding in choosing a savings account that will earn you the most money and build up a healthy saving.
