Different Bank Account Types
When you compare bank accounts, there are many differences to consider, whether you're reviewing checking accounts, interest-bearing checking accounts, or savings accounts.
Evaluating Bank Services
A banking relationship is about more than just the interest rates of the savings accounts and mortgages--it's also about you getting the services you want. When you compare bank rates, don't forget to compare customer service methods and online banking availability as well, depending on your priorities. Here are some things to consider:
- Can you transfer between accounts online? Is there a fee to do so?
- Does the bank have an automated system for answering calls? Is that something you are comfortable with or would you prefer a live operator system?
- Is there a bank branch near your home or office?
- Are there ATMs available where you shop and work, or will you have to pay a fee for every transaction?
- Is your bank open during hours that you find accessible or are the hours too restrictive to work within your schedule?
- Do you need national and international wires to and from your account? Can your bank accommodate that?
- Will the bank allow free transfers between accounts?
Who Needs a Savings Account?
Savings account rates are not notoriously high. This leads many people to avoid the work put into comparing the rates of savings accounts and just leaving their emergency cash fund in their non-interest-bearing checking accounts. But no matter how low savings account rates are, some growth is better than no growth, so it's still better to deposit your money in a savings account than it is to leave it in a checking account.
Example: Let's say you have $1,000 to deposit in a savings account for emergencies. If you leave that in your non-interest checking account for a year, you'll still have that same $1,000 at the end of 12 months. It's even possible that you'll have less because you're more apt to the spend money that's in your checking account than the funds in your savings account.
Now, if you deposited the $1,000 in a savings account earning 1% interest compounded monthly, you would have an additional $127 by the end of the year. So even though a 1% rate is not high and certainly won't bring you to retirement, it's more growth than no growth.
High-Interest Savings
Believe it or not, it is possible for the average investor to get high interest savings accounts. With rates upward of 2%, these high interest savings accounts may not make you rich or compete with the growth of stocks or mutual funds, but as far as savings accounts go, they're impressive.
High interest savings accounts are great tools for emergency cash, short-term investments, and any money that you want to gain a small return on for limited risk. It's important to remember that the rates on high interest savings accounts could be less than the rates of many bonds and CDs, which are also considered lower-risk investments. Before you settle on a high interest savings account, compare the rates of all low-risk investments.
Of course, bonds and CDs can lock you into their vehicles for a certain period of time, which can give you some liquidity risk. For instance, if you invest in a bond and need to liquidate, you must find a buyer. If new bond rates are higher, you might have to sell at a discount in order to get any buyers. In addition, CDs might have charges if you take your money out before it matures.
