Make your cash work harder

Invest Wisely

Savings Account

How do you get the best rates on savings accounts?  Well, here are some suggestions:

  • Maximize the amount that you put into your savings account.  Banks tend to tier their interest rates based upon minimum deposits.  Common minimums include $10,000, $25,000 and $100,000.  As of this writing, the average savings rates were around 0.26% with no minimum deposit.  However, even at the highest deposit tiers the interest rates maxed out at around 1.5%.
  • Open up a checking account and have your paycheck directly deposited to it.  Having this second account is often mandatory for many banks to give higher rates.  Some give you similar benefits if you take out a debit card and have a set number of transactions per month.  For this reason check with the bank you do your current banking with first.
  • Use a credit union instead of a bank as they tend to offer higher interest rates than banks do.  You can join a credit union
  • Use an Internet bank.  Examples of these include ING Direct and Ally Bank. These banks have no brick and mortar overhead and can offer higher rates on your savings account.  Just keep in mind that you can’t go to a branch office to do your banking.  You should, however, still have access to ATM services.

Savings accounts are great if you need a place to store your money for short periods of time.  For example, if you are saving for something that you plan to buy within a year. They are also good for emergency funds.  You can usually put money in and take money out as often as you like and you also get the use of ATM machines to get access to your funds.  Another great thing about savings accounts is that, in the U.S., your funds are insured for up to $250,000. 

There are some things cautions your should take when researching savings accounts looking for the best interest rates.  First of all, make sure you review the fine print on the account and pay attention to the fees that you may incur.  There can be fees for not keeping a minimum account balance.  Banks may charge you a monthly fee unless you also keep a checking account.  You may find that some savings accounts target minors 18 yrs of age and younger.  Once you turn 19 then the rates go down.

One more thing, even the best interest rates on savings accounts are completely overshadowed by inflation.  For example, between 2001 and 2011 (thru October) the inflation rate varied between 0.1% and 4.1% and averaged 2.45%.  The most recent year, 2011, stands at about 3.5%.  So if the best savings rate is around 1.5% and the inflation rate is 3.5% then putting money in a savings account will result in a 2% loss in the purchasing power of your money.  For this reason, if your investment horizon is longer than one year, you should consider other financial instruments like Certificate of Deposits, Bonds, Mutual Funds and Annuities.  Sure, they may carry a higher risk than a savings account but you have a better chance of fighting off the effects of inflation.