You don’t have to be a numbers person to have a healthy bank account. But when it comes to savings, knowing a few key numbers can help you maximize your options. Here are five numbers that can help you determine if a savings account is right for you, or if it might cost you.
1. Minimum amount to open
Some banks require a minimum deposit to establish an account. The minimum requirement is usually $25 to $100, according to the Consumer Financial Protection Bureau, although there are accounts with a minimum of $1,000 or even $5,000. But if you have to save just to open a particular savings account, that account may not be right for you. And there are plenty of savings accounts with no minimum to open.
To really benefit from the savings, including having adequate reserve for emergenciesYou’ll want an account where you can easily manage the opening deposit so you can start making regular deposits and saving.
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2. Interest rate
The interest rate is how much money your money earns while it is in a savings account. For savings accounts, the interest you earn over a one-year period is often expressed as the annual percentage yield, or APY. So if you have $100 in an account and the interest rate is 1%, your money would earn $1 in interest. Over time, interest earned on savings accounts also earns interest, known as compound interest.
These days, many savings accounts earn low rates. According to the Federal Deposit Insurance Corporation, the national average rate for savings is just 0.06%. But some of the best accounts they have returns that are many times higher, with low (or no) minimum deposits.
Look for financial institutions that offer high interest rates compared to their competitors. The higher the interest rate, the faster your balance can grow.
3. Monthly fee
The monthly service fee is an important number to keep in mind because it can work against your savings goals. Some financial institutions charge this fee, usually around $5 a month, for having a savings account open at their bank. But if you’re paying $5 a month, you’re paying $60 a year, money you could be saving.
Some financial institutions may waive the fee for customers if they meet certain requirements, such as signing up for automatic deposit or keeping their balance above a certain amount (see #4 on this list). But many of the best savings accounts don’t charge these fees at all.
If you choose an account that has a monthly service fee, look for one whose fee you can easily waive.
4. Minimum amount to avoid a monthly fee
Many banks that charge a monthly fee will waive it if you maintain a minimum balance for the entire month. A typical minimum daily balance, for a bank that has one, is $300. If you don’t want to have to keep track of a daily minimum balance, avoid the cost (and potential hassle) by simply putting your money in a savings account that doesn’t charge a monthly fee.
5. Excess withdrawal limit
This is a fee that some banks and credit unions charge if you have too many withdrawals from your savings account each month. The transactions, known as convenient withdrawals, include online transfers, overdraft protection transfers and phone-initiated transfers.
A bank or credit union may charge a fee if you make more than six of these withdrawals in a month, usually around $5 to $10 for each excess transaction. The restriction was previously in place due to federal regulations. But in April 2020, the Federal Reserve gave institutions the ability to remove this limit and “allow their customers to make an unlimited number of transfers and convenient withdrawals of their savings.”
However, many banks still charge this fee, so you’ll want to check with your financial institution about their policy.
Every saver can get the most out of their savings account by staying on top of these five key numbers. They can help you minimize costs and maximize interest, so you can be well on your way to meeting your savings goals.