A savings account can help you save for a short-term goal, such as the purchase of a new sweater. It can also be used to save for a long-term goal, such as a down payment on a home or car. Whatever the reason for using a savings account, it pays to obtain the highest interest rate possible on that money. There are a few steps you can take to help you get the best interest rate on your available savings.
Interest rates on savings accounts vary by bank and account type. Check with local banks and credit unions in your area to find out the interest rates they offer. Many financial institutions, especially national banks, share their interest rates on their websites, which makes it easier to compare rates. According to Bankrate.com, online banks tend to offer the highest rates on savings accounts because they carry less overhead than banks with bricks-and-mortar locations.
Compare different types of savings products to see which has the most favorable rate and features for your situation. For example, a money market account is a type of savings account that typically pays a higher interest rate than a standard savings account. You can also write checks from a money market account, unlike a standard savings account. Certain banks, such as Dollar Bank, offer a "relationship savings account," which gives a higher interest rate to customers who have a relationship with the bank via other products, such as a checking account.
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Consider a Longer Term
The longer you leave money in a certain types of savings account, the higher the interest rate. For instance, a certificate of deposit lets you deposit a sum of money with the bank for a specified period of time. CD terms vary but can range from three months up to several years. Usually, the longer you leave the money in the certificate of deposit, the higher the interest rate you'll receive and the more money you can earn on it. Just make sure you want to keep the funds in there for awhile. You might have to pay an early withdrawal penalty if you cash in a CD before the maturity date.
Read the Fine Print
Some savings account come with restrictions. Just because you see a specific interest rate advertised doesn't mean that rate will apply at all times. Some banks, such as Mountain West Bank, offer a tiered savings account. This type of account determines the interest rate on your savings account by the amount of money you have in that account. The more money you keep in it, the higher the interest rate. In other words, the highest interest rates are reserved for the depositors who maintain the highest amount of cash with the bank.
Watch the Withdrawals
Regardless of how much you earn in interest, the way you handle the account can eat into your earnings. According to Bankrate, federal law restricts the amount of withdrawals you can make on a savings account to six per month. If you withdraw more than that, the bank can impose an excessive withdrawal fee. Fees reduce the amount of savings in your account. In addition, certain types of accounts might require a minimum balance. Money market accounts often require you to maintain a minimum deposit and limits the number of checks you can write from the account. You might have to pay a fee if your balance dips below that threshold or if you write too many checks.