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Opening a savings account is a great way to put money aside for larger purchases or a rainy day. Before opening one, there are some basic terms to understand that could save or earn you money. Learn about interest rate terms, fees, and features to help you select the best account for your savings goals.


Understanding Interest Rates

When you open a savings account, that bank can lend your money to other customers as loans, mortgages, or credit cards. In return, they pay interest to you for that service. Not all savings accounts offer the same interest rate, and even minor differences can accumulate over time.

There are a few different types of interest to understand. Simple interest is calculated from the original amount of money put into your account, while compound interest also includes the earned interest. Look for savings accounts with compound interest that will earn more money over time. The annual percentage yield (APY) is the rate of return that includes the compound interest over a year.

Some accounts will have a fixed interest rate that stays the same, and others will be a variable interest rate that changes with the market. A fixed rate provides security, which can be beneficial, especially if you find a bank with a high rate. It does not have the potential to increase or decrease like with a variable interest rate.


Minimum Deposit and Balance Requirements

The minimum deposit is the smallest amount you need to deposit to open a savings account. This is an important factor if you only have a small amount of money to put into savings. Some banks or credit unions offer savings accounts with a deposit as low as $1.

Some banks require a minimum balance in addition to a minimum deposit. You must maintain this amount in the account to avoid fees or penalties. Online banks and credit unions often offer accounts with no minimum balance. This is useful if you plan to withdraw money to pay for expenses or emergencies. If you select a bank with a minimum balance, check what the fee will be if your balance falls below it and if you will receive an alert when you get close.


Do I Need Overdraft Protection?

Overdraft protection is a feature that automatically transfers funds from your savings account to your checking account if you don’t have enough money to cover a purchase. Banks typically charge a fee for this service, but it is typically less than overdraft fees that can rapidly accumulate when you overspend. There are some considerations before opting into overdraft protection, such as whether it allows you to spend money when you don’t have it in your checking account. Overdraft fees, while less, can still add up. Many banks are moving towards eliminating overdraft fees, so this might be a better option to explore.


Other Fees to Look Out For

There are several other bank fees or other charges that can eat into your interest earnings. Review all the fees associated with a savings account before opening one. Banks may have a monthly fee for maintaining the account, which they waive if certain conditions are met, such as maintaining a minimum balance. Some banks have a maximum number of withdrawals you can make from your account each month without incurring fees.


Key Features You May Want

What other features do savings accounts offer? Most now offer online banking, which allows you to manage your savings account through a secure website or mobile app. However, the usability of the websites and apps varies. Look for banks with good ratings for their online banking. Not all offer remote check deposits or the ability to send money to friends and family.

Accessibility is another consideration. Does the bank have nearby and nationwide ATM access? Is a branch with lobby hours available if you want to speak with someone in person? Do they have evening and weekend hours to work around your work schedule?

Direct deposit is a feature that allows you to automatically deposit your paychecks or other funds into your savings account. Automatic transfers will enable you to set up transfers of funds from your checking account to your savings account at regular intervals. This can be a valuable way of building up your savings.


Other features to look for are the ability to:

  • Open new accounts online without assistance
  • Transfer money between accounts without fees
  • Monitor your credit score and receive alerts
  • Apply for loans or credit cards
  • Chat with customer service


It’s essential to compare the features and interest rates different banks offer and find one that best meets your savings goals. Before deciding, consider the bank’s reputation, security measures, customer service options, and additional fees or restrictions. Remember that the best online savings bank for one person may not be the best for your situation.

Mollie Finch Belt is the Publisher and Chief Executive Officer of The Dallas Examiner. She attended elementary school in Tuskegee, Ala.; Cambridge, Mass.; and Dallas, Texas. In 1961, she graduated from...

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