You don’t have to be a numbers geek 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 decide if a savings account is ideal or could be expensive.
1. Minimum amount to open
Some banks require a minimum deposit to open 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 need to save just to open a particular savings account, that account might not be right for you. And there are plenty of savings accounts with no minimum to open.
To really take advantage of the savings, including having an adequate budget reserve for emergenciesyou will need an account where you can easily manage the opening deposit so that you can start making regular deposits and saving.
2. Interest rate
The interest rate is the amount of money your money earns when deposited in a savings account. For savings accounts, the interest you earn over a one-year period is often expressed as an annual percentage yield, or APY. So if you have $100 in an account and the interest rate is 1%, your money will earn $1 in interest. Over time, interest earned on savings accounts also earns interest, known as compound interest.
Learn more: The Compounding Miracle – How to Invest: Ep. 3
These days, many savings accounts earn low rates. According to the Federal Deposit Insurance Corp., the national average savings rate is just 0.06%. But some of top accounts have returns several times higher, with low (or zero) 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 fees
The monthly service fee is an important number to watch out for, as it can work against your savings goals. Some financial institutions charge this fee, usually around $5 per month, to have a savings account open in their bank. But if you pay $5 a month, you’re paying $60 a year — money you could save.
Some financial institutions may waive fees for customers if they meet certain conditions, such as signing up for automatic deposits or keeping their balance above a certain amount (see number 4 in this list). But many of the best savings accounts don’t. charge these fees at all.
If you choose an account with monthly service fees, opt for an account whose fees you can easily waive.
4. Minimum amount to avoid monthly fees
Many banks that charge a monthly fee will waive it if you maintain a minimum balance throughout the month. A typical minimum daily balance – for a bank that has one – is $300. If you don’t want to have to track a minimum daily balance, avoid the cost (and potential hassle) by simply putting your money in a savings account that doesn’t charge monthly fees.
To see: How much should I invest? | How to Invest: Ep. 1
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 convenience withdrawals, include online transfers, overdraft protection transfers, and telephone initiated transfers.
A bank or credit union may charge a fee if you make more than six such withdrawals in a month, usually between $5 and $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 eliminate this limit and “allow their customers to make unlimited convenient transfers and withdrawals from their savings.”
However, many banks still charge this fee, so you’ll want to check with your financial institution about their policy.
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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 on the right track to reaching your savings goals.
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Margarette Burnette writes for NerdWallet. Email: firstname.lastname@example.org. Twitter: @Margarette.