Savings rates may vary by bank and account type. Whether in a savings account or money market account, deposits that earn a higher savings rate will grow at a faster pace. Account holders are subject to a six-withdrawal limit per month and deposits are covered under FDIC insurance up to $250,000 per depositor, per insured bank, for each ownership class.
1 Why do savings rates vary so much?
The type of bank, type of interest-bearing account and deposit balance can play a role in savings rates. Online savings accounts and money market accounts usually offer higher savings rates because online banks have lower expenses from not having to maintain brick-and-mortar locations. Savings rates can also differ by account balance -- more deposits may qualify for a higher savings rate.
2 What is the difference between a savings account and a money market account?
Like a savings account, a money market account holds deposits that earn interest. However, money market accounts usually require higher balances to avoid monthly fees, if any. Because of these deposit requirements, money market accounts tend to carry higher savings rates compared to savings accounts.
3 What does annual percentage yield (APY) mean?
Savings rates are displayed in terms of APY to indicate the effective annual-interest return when taking the effect of compounding interest into account (assuming that the deposit balance does not change. However, fees may lower the effective savings rate in savings accounts and money market accounts.
4 How do I choose the right savings account?
Begin your search at your current bank. Even if you already have a savings account with them, ask about other products that may better suit your needs. Do not assume that the accounts you have now are best for your situation.
You should also compare rates for a high-yield savings account using our savings calculator. Some products may beat your current bank’s rates, but do not assume the highest rate is the best option. You have to make sure you choose the bank that will best fit your banking habits. You may be comfortable with your own bank and not want to start a new relationship, even if you do find a slightly higher interest rate.
5 Why should I open a savings account?
You may want to start saving for a new TV in a few months, a new car in a few years or to send your kids to college further down the road. All of them require some sort of savings plan.
An emergency savings account is another vital part of your overall financial health. Some experts advise setting aside $1,000. Others recommend holding the equivalent of three months salary in savings. Some insist that up to one year’s salary is crucial -- particularly to protect against unemployment.