Savings Account Rates Are High Right Now, but I’d Still Stay Away From These

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The best savings account rates top 4.30% and could put hundreds of dollars in your pocket each year. But you won’t find deals like that with these banks. 

When we think about growing our savings, we typically think about doing things like working more or foregoing things we want so we can hold onto more cash. There’s no denying these actions can help. But there’s an easier way to grow your wealth that a lot of people overlook.

Your savings account pays you each month for keeping your money there. And with the best savings account interest rates today over 4.30%, it’s possible to add hundreds of dollars to your balance in a year without any work on your part. But not all banks are this generous. Even in times of high rates like these, there’s one type of savings account I’d steer clear of.

How much does your bank think you’re worth?

Not so long ago, your only option for savings other than keeping your cash in your home, was to take it down to your neighborhood bank and put it in a savings account. That’s still an option today and it works more or less like it did back then. But if you’ve ever owned a brick-and-mortar savings account, you know that you probably don’t earn much over time.

The problem with physical bank branches is that banks have to pour a lot of money into maintaining them. There’s the cost of operating the building itself — property taxes, utilities, etc. — and then there’s the salaries of the people who work there. It adds up quickly, and it leaves brick-and-mortar banks without a lot of cash to spare.

As a result, they’re not able to offer competitive annual percentage yields (APYs) on their savings account products. Some of them only offer around 0.01% APY. To give you a sense of just how low this is, if you had $1,000 in your savings account and earned 0.01%, you’d only make $0.10 in a whole year. And if your savings account has a monthly maintenance fee you can’t waive, you’ll probably lose money over time.

It’s not a great deal for most people. Unless you have a strong preference for doing your banking in person, an online bank is probably a better fit for you. These banks don’t have large branch networks to maintain and as a result, they have more cash available they can use to offer higher APYs while charging fewer fees.

How to choose the right online savings account for you

Online savings accounts have exploded in popularity in recent years, so there’s no shortage of options for you to consider. But that can feel overwhelming, especially if you’ve never heard of most of these online banks.

But finding the right one isn’t as complicated as you might think. The first step is just knowing what’s most important to you in a savings account. Understandably, a high APY is key for most people. Don’t feel like you need to find the highest rate around, though. Banks change their APYs all the time, and what’s highest today might not be highest tomorrow. Instead, look for one that offers a rate that’s pretty close to the top savings account offers.

Then, you need to think about how you like to access your money. Some questions to ask yourself include:

How often do I plan to withdraw money from this account?Do I want a checking account at the same bank so I can easily transfer funds between the two?How much money do I plan to keep in the savings account?Do I want an ATM card so I can withdraw cash directly from the account?

Use your answers to these questions to guide your selection. For example, if an ATM card is important to you, you can skip over any online savings accounts that don’t offer one. And if you want to do all your banking in one place, avoid online banks that don’t offer checking accounts as well.

After you’ve looked through some of the top offers and chosen a few that stand out to you, dive deeper into their features. Review the fee schedule on the bank’s website and make sure you have enough money to meet any initial deposit requirements. Don’t hesitate to reach out to the bank if you have questions about how its account works. You may also want to look into reviews for its online and mobile banking tools as these will be your primary way of managing your funds.

If you try out a new bank and decide you don’t like it, you can always move your money down the road. But this can be a hassle, so it’s best to take your time and thoroughly research your options until you find one you’re comfortable with.

These savings accounts are FDIC insured and could earn you 12x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 11x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2023.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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