Banks and credit unions compete with one another to offer the best rates on their savings accounts and attract new customers. You can use that competition to your advantage and get the most interest for your money. The prevailing interest rates on savings accounts fluctuate along with the rates on loans, CDs and other bank instruments, but if you shop around you can maximize your savings rate. If the typical savings account is paying less than half a percent, you may be able to find a savings account paying more than twice that much simply by shopping around and watching for deals.
Online Banks and Credit Unions
Online banks and credit unions can often provide higher interest rates on the savings accounts they offer. The lower cost structure these online institutions enjoy can be passed on to their customers in the form of higher interest rates, letting you earn more money and make the most of the cash you have to put away. Shopping around among online banks and credit unions can help you earn even more on your money.
High-Yield Savings Accounts
Some banks and credit unions offer high-yield savings accounts that pay much more than traditional accounts. These high-yield accounts may come with strings attached, however, including limits on the number of transactions you can make and higher-than-average minimum balance requirements. Before you open a high-yield savings account, you need to research these requirements and be sure you can meet them.
No matter where you open your savings account, the money you earn is subject to income taxes. Each year you have your savings account you will receive a 1099-INT form listing the amount of interest you received for the previous year. It is your responsibility to report the amount of interest you received to the IRS when you complete your tax return. The IRS also receives a copy of the 1099-INT form for your savings account, and if you fail to report all the income you can expect a follow-up letter from the tax agency.