Introduction
What is a savings account?
Savings accounts are like bank accounts where you can deposit or withdraw money and get compound interest on the deposited money. In some of the savings accounts you can get interest that depends upon your deposit amount. The APY provided by the traditional savings bank is between 0.01% to 0.15%.
There are some savings banks such as traditional and brick and mortar banks which charge an additional fee from the users for the maintenance of their accounts.
What experts say about savings accounts?
The people who want to grow their savings to a large extent should choose a high yield savings account which you can find with an online bank. Most people think they will get the highest rates if they choose the brick and mortar banks such as Bank of America, JP Morgan and Wells Fargo etc. But these banks do not provide you any kind of interest on your savings.
There are other types of banks also which are called online only banks, but these banks do not have any physical branch. The overhead cost of the online only banks are very low and they can provide some of the savings to their customers through the higher interest rates, and by charging less fees from the customers on savings accounts.
At present, there are some online only banks which provide over 5% for savings accounts as compared to the rates offered by other banks. If you move your funds to the online only banks then it is a very difficult task because you may not be familiar with the best financial institutions that offer you the best APYs.
If you don’t have access to the physical branch of a bank then you may feel very uncomfortable and unfamiliar but there are many ways by which you can feel comfortable by opening an online only bank account. There are many cases in which the traditional savings account which has an off-line branch may work better for you as compared to online-only banks.
How to choose a savings account?
Before choosing a savings account, you should consider some factors. These factors are discussed below.
Annual percentage yield (APY)
If the annual percentage yield of your savings account is higher, that means you can earn more money. You should compare the rates of different banks, that is which bank provides you a higher APY and you should choose your bank according to that.
If the bank chosen by you does not provide you with competitive APY, then you should look for other banks. Also, you can open multiple savings accounts as it does not have any disadvantages. But you should fulfil the criteria that is, you should deposit the minimum amount that is required by the bank.
Online versus brick and mortar bank
If you get your money in cash, then you can choose an off-line bank , whose branch is nearby you. If the bank has a physical branch, that is near you, then it becomes very easy for you to withdraw or deposit any amount of cash. So, in this case, you can choose a bank that has its physical branches nearby you.
There are some online only banks which does not provide you ATM services but you can transfer the money from one account to another account whenever you need. If you don’t have cash to deposit or withdraw in the bank, then you can consider using an online only bank as they charge you a lesser fee as compared to banks that have physical branches.
Also, the savings rates provided by such banks are much higher. If you feel that the banks having physical branches are safe, and you can easily go there to manage your savings, then you should choose those banks.
If you want to earn a high interest rate along with having access to the branch of the bank, then you should choose a savings account at a bank that offers both such as the capital one or the Citibank.
Savings account requirements
It is very important that you meet the minimum requirements that are set by the bank. That is, you should deposit the minimum amount that is required by the bank in order to open your account. Also, you should look at APY thresholds because there are some banks which will provide you a high interest rate only for your initial savings, but after that, they will give you a lower interest rate.
So before you open an account in the bank that you have chosen, then you should read the terms and conditions of the bank very carefully and make sure that you feel comfortable with all the requirements.
Account features and perks
The way you manage your savings account, also matters a lot. But the transfer time of online- only banks is longer when you transfer money from one account to another account.
Different types of savings accounts
Traditional savings account
This type of account has a drawback, that is, you cannot earn more interest as in the case of a high yield savings account. Along with this, it also has an advantage that it allows the users to use an ATM to withdraw and deposit money.
High yield savings account
The high yield savings account is somewhat similar to the traditional savings account but the interest rate it offers is several times greater than that offered by the traditional savings account. These accounts are generally at the online banks, credit unions and neobanks.
But in this case, you won’t be having in person access, so you have to manage your account online. If you withdraw or deposit money out of a network ATM, then you have to pay an extra fee.
Money market account
If you want to earn a high amount of interest, then you should have a high balance in your account.
Certificates of deposit
The CDs allow you to deposit initially only at time. There are some other CDs that provide you more flexibility.
Pros of opening a savings account?
Growing your savings
Savings account helps you to grow your savings faster and allows you to reach your saving goals in a shorter period of time by earning interest on your account balance.
Federal protection
The balances at federally insured banks are protected.
Low risk
A savings account is considered very safe to keep all your savings since it is insured and does not face market volatility.
Cons of opening a savings account
Other options may pay you more
There are various other options which will pay you a greater amount of interest. These options include low risk savings options such as a CD.
Limited access to your funds
There are some banks that limit the number of withdrawals per month, that is, you cannot withdraw an unlimited number of times in a month. There are only a limited number of withdrawals. If you want to make withdrawals more frequently then you have to pay an extra fee.
What is an online bank?
An online bank or a credit union is the one which allows you to manage all your funds and deposits online without going to the off-line branch. You can either use the website of that bank or access it through the mobile app. The technology makes everything very easy to do online, but there are several disadvantages of online banks.
The online banks do not provide any kind of in person assistance, and you may have to wait for a longer period of time in order to get your queries solved. Also, it has many advantages such as it is a low-cost option and if you are okay with managing your account online, it’s a great option for you.
Depositing or withdrawing money from online bank
Bank transfer
A bank transfer is one of the most basic and common ways to transfer money from an account to another account.
Mail or wire transfer
If the bank does not have any physical branch, then also you can mail a paper check or wire transfer the funds.
Mobile check deposit
You can also deposit a paper check using the mobile app.
Conclusion
In this article, we looked at two different types of bank accounts. The first one is a savings account and the other is an online bank account. A savings bank account is where you can deposit or withdraw money and get compound interest on the deposited amount. Then we came to know what experts say about a savings bank.
After this we came to know about the various factors that we must consider before opening a savings account. Also we came to know about the advantages and disadvantages of opening a savings bank. At last, we came to know about online banks and the ways to deposit or withdraw money from the online banks.
