We all know that we should put a portion of our income into savings each month; that is the easy part. Knowing which savings account to put it in, however, is another issue.
Like chequing accounts, there are a multitude of savings accounts to choose from. High interest savings accounts (HISAs) are often touted as the best possible vehicle to place your money in. However, like all banking products, this may not necessarily fit your own personal requirements and habits. And while the high interest rate may sound appealing, there can be many stipulations and fees that offset the benefits of such accounts.
So, what should you consider before selecting a savings account?
1. Interest Rates
The higher the interest rate, the more money you will earn on your savings – so the savings account with the highest interest rate is almost always the best. Most financial institutions advertise an annual interest rate, though, but they could then calculate it on a monthly or even daily basis. Therefore, you need to check how it will be applied to your account.
Some banks also offer tiered savings accounts, which may look good at first, but may not work out in your favour if the balance of your account is at the bottom of those tiers. For example, a financial institution could offer 0.50% on the first $5,000 and then 1.00% for anything over and above that. If you believe it’s an account that offers 1.00% interest but you only have $2,500 in the bank, you could miss out. So make sure you read the fine print, before you deposit your cash into any account.
2. Teaser Rates
Many financial institutions offer high interest introductory rates for a short period of time, in order to bring in new customers. What they don’t tell you upfront (but keep in the fine print) is that the rate is lowered after – often to a fraction of what was advertised. Sometimes the teaser rate is still high enough that it could be worth transferring the balance of your savings over for a while, and then looking for another account with a good teaser rate and do that again. But it also takes time – and that’s something you should place a high value on, too. Nonetheless, don’t be scared to accept a teaser rate, but be sure you’ve done your homework and have a plan for what to do when that high interest rate drops.
3. Minimum Balance
Some financial institutions require that you maintain a minimum balance ($3,000-$5,000 is common) in order to earn the interest – or even to avoid monthly service fees. Others have no such restrictions, and will pay you interest no matter what the balance is. Make sure you ask, before you sign up!
4. Service Fees
Every savings account is different, but many of them do come with small monthly fees, as well as have a number of transaction fees associated with them. Again, sometimes these can be waived by maintaining a minimum balance, as outlined in #3 – and some accounts even have free unlimited transactions. Consider your history of past savings accounts, as well as your goals, and map out the number (and type) of transactions you’ll be making with your next savings account. Then compare the best savings accounts on our site and find the right one for your personal needs. Every dollar you spend to save your money takes a bite out of how much you actually saved – so try to pay the least amount possible (free is obviously best).
One thing that can be easily overlooked when deciding which savings account to open is its accessibility. Think about your savings needs: do you want access to an ATM so you can deposit cash directly, or will you do most of your deposits via online banking? If you need access to an ATM, consider which banks have branches close to your home or office – and then consider how many transactions you’ll need to do each month and see if you can find a bank and savings account that offers free deposits at ATMs.
These are just some of the things to consider, when looking for a new account to deposit your cash into. If you’re in need of a new savings account, check out our comparison tool today.
Flickr: Kat R