Choosing the right bank to open a savings account might seem simple, but the wrong choice can cost consumers money. Many consumers overlook important account features that could help their savings grow or stay with the same bank despite higher fees and minimum withdrawals because the bank is familiar.
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However, there are smart money moves consumers can make to help make their savings work for them. Here are five costly mistakes to avoid when choosing the right bank for your savings account.
Many individuals park their savings in a traditional bank savings account and settle for minimal interest rates.
According to a recent Vanguard survey, 54% of Americans save in traditional bank savings accounts — and 39% in checking accounts — where the average interest rates are roughly 0.41%.
“Keeping your hard-earned savings in a low-yielding account could mean leaving significant interest earnings on the table,” said Tiana Patillo, CFP, financial advisor manager at Vanguard. “Make sure that the account you’re considering offers a competitive yield.”
The Vanguard survey also found that 60% of Americans didn’t completely understand how interest rates impact their savings, and 57% reported that their savings are earning less than 3% interest.
“The yield, or annual [percentage] yield (APY), of a particular account tells you how much interest or return you can expect to earn on your savings over a year,” Patillo said. “Saving in an account with a higher yield can help you reach your goals faster, and that probably means considering options outside of your [current] bank.”
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Savings accounts aren’t set in stone. Shopping around for the right savings account could help consumers maximize their purchasing power.
“With the Federal Reserve’s periodic revision of the Fed Funds rate, you’ll notice that banks often reciprocate by adjusting their savings accounts interest rates,” said Gary Zimmerman, founder and CEO at MaxMyInterest, a platform for earning higher yields on FDIC-insured cash.
Zimmerman explained, “However, not all banks do this simultaneously or by similar margins. As banks continually change their rates, rate comparison platforms can help you identify the top rates. Many banks are paying an interest rate that’s less than the inflation rate, which means you’re actually losing reach purchasing power every day.”
