Tuesday, September 24, 2013

What to Look for in a Savings Account

More than a quarter of Americans do not have any money in savings, according to research released in June 2013 by Bankrate.com. And nearing retirement is a big incentive to consider your long-term financial stability. 

If you haven't started saving already, now is the time to open a savings account.

To assist you in the decision-making process of choosing where to open your savings account, here is a guide that emphasizes the importance of low fees, limited restrictions, bank insurance, high-yield interest and other factors. 

· Watch for Fees


Beware of hidden fees. Saving accounts may have fine print that lists costs that will take from the money you are trying to save with maintenance fees, activity fees, monthly fees, withdrawal fees and others. Make sure to ask questions -- like whether there is a minimum balance requirement or if it costs to transfer to the account when your checking is through a different bank -- before handing over your money.

A good bank will allow you to put money aside without hassling you with excessive charges.

· Check for Accessibility


Although this account should not have withdrawals taken at the frequency of a checking account, strict restrictions (which may include fees) on the number of withdrawals is not a good sign. Look for an account that will allow you access to your funds in case of an emergency. You will be saved from turning to credit or taking on extra debt. 

· Earn that Interest


Forbes.com recommends finding online savings accounts with interest rates around 0.87 percent or traditional banks with around 0.74 percent. But beware of introductory interest rates that shrink after the first few months.

If you are able to add money to your account on a monthly basis, your bank may offer special rewards like higher interest rates.

· Look into Online Banking


An ad for a promotional savings account in your mail or a solicitation from your bank teller may not give you access to the best savings account available. Shop around, and compare offers from online banks.

Online banks offer special incentives as they try to convert customers used to working with traditional banks. These banks cost less to operate, allowing the banks to offer higher rates of return on savings accounts.

· Research Credibility


The banking industry is not immune to economic fluctuations, and if a bank suffers major losses, your money may be at stake. Before you commit to either an online or traditional bank, do some research into a bank's credibility.

Check to find your bank's Tier 1 capital ratio, which is a measure of strength based on equity and risk. Experts recommend avoiding banks with a Tier 1 ratio of less than 10 percent.

Makes sure your money is insured. FDIC insurance protects up to $250,000 per depositor. If a bank you are looking at does not have this protection, take your business elsewhere.

· Move to the Next Level of Savings


As you learn to put aside a portion of your income for savings, you can move to the next step: opening a savings account that is an investment product. Divide up excess funds into accounts with greater interest rewards and tax benefits.

Financial products to help protect your retirement years include IRAs, 401(k)s and annuities. Once you've saved up a lump sum, an annuity can give you access to regular payments to supplement Social Security payments that might otherwise be your only income during retirement.

Saving money in an envelope at home or letting a balance grow in your checking account may seem like enough to tide you over for the next few years, but truly preparing for the future will require putting in more effort, starting with getting a balance in the right savings account.

Alanna Ritchie is a content writer for Debt.org, where she writes about personal finance and little smart ways to spend (and save) money. Alanna has an English degree from Rollins College.


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