Not all savings accounts are the same. Different banks offer different interest rates. And individual banks typically offer a number of savings account options from which to choose.
Before opening a savings account it’s a good idea to figure out how you’ll be using it. Ask yourself:
- How long you’ll be keeping your money in the account.
- How often you’ll want to withdraw money.
- How much money you’ll keep in the account.
All of these factors can have an impact on how much interest you can earn. A simple rule to keep in mind is that time is money. The longer you’re willing to leave your money alone in an account the higher interest you’re likely to earn. Similarly, banks tend to offer higher interest if you’re willing to keep a minimum balance. These can range from $100 to thousands of dollars.
Types of savings accounts
While there are many different savings options available, they all fall into four main categories.
- Basic bank savings accounts offer the lowest interest rates. They have few restrictions on access to your money, and they tend not to require minimum balances.
- High yield savings accounts are like basic accounts, but they typically require a minimum balance.
- Online savings accounts are a lot like basic bank accounts, but they offer higher interest rates because they operate online and don’t have the overhead that standard banks have.
- Credit unions. These are like banks, but they’re owned by their customers. They tend to offer higher interest on savings.