If you’ve got an effective budget in place and your consumer debt is under control, it may be time to shop around for a savings account. Keeping some money separate from your regular checking account is useful for growing an emergency fund, saving for a vacation, or prioritizing financial goals. There are many savings account products and options available. Here are some tips for what features to look for as well as some dangers to avoid.
Savings Account Uses and Benefits
There are many ways a savings account can help achieve financial goals. Even if you’re still managing credit card debt, there are reasons to consider keeping some money in savings. For example, an emergency fund is one of the best protections for avoiding reliance on credit when unexpected expenses arise. Alternately, you can prepare in advance for large purchases you expect in the future by saving for vacations or a down payment for a house or car. Using a savings account will help grow money you set aside more quickly. Plus, separating savings vs. checking accounts can help keep you from dipping into savings for the wrong reasons.
You need to choose a bank and an account wisely, however, to avoid hurting your savings more than helping. Here are some ideas for what to look for in a savings account as well as some features to stay away from.
Desirable Savings Account Features:
- Deposit Insurance – Any account providers you consider should be insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Association (NCUA). In the event something causes the banking institution to fail, the FDIC or NCUA will repay any lost funds to you up to $250,000 per account. You can search for FDIC-insured institutions by using the BankFind feature on their website.
- Competitive Interest Rate – In order for any account to be worthwhile, your money should grow reasonably on its own. In the current financial climate, an interest rate close to or above 1% is acceptable.
- Online & Mobile Banking Available – Being able to add or transfer funds from home or while traveling is extremely valuable. With the technology available, this should come standard with most account providers.
- Sub-dividable Accounts – Being able to subdivide money for different purposes within one account is handy for organizing finances. It is not as essential as other features, but some banks offer it free.
Attributes to Avoid:
- Limited Access to Funds – Some accounts will limit the number of withdrawals per month or the number of transfers and so on. Not being able to access emergency funds defeats the purpose and can put you in danger if you’re trying to reduce credit card debt. You will be more likely to turn to the convenience of a credit card than suffer through banking rules. Plus, there are highly liquid options available.
- Excessive Fees – Some account providers will charge fees for having too low of a balance. Others will charge for multiple money transfers. Fees can result in nullifying your earnings from interest. Therefore, it’s important to shop around for an account that has zero or extremely limited fees.
Depending on your location, you may consider opening a savings account with a credit union or an online-only bank. These options frequently have fewer fees, higher interest rates, and are more client friendly. You may have to sacrifice some of the perks of going with a larger institution. Smaller account providers don’t always offer mobile banking or other extra services, but it’s worthwhile to investigate all of your options. You can research credit unions on the National Credit Union Association website.
If you’re struggling with credit card debt, speak with a certified counselor about debt consolidation options. Call 1-800-769-3571 today.