In the old days, when all banks offered interest rates of 5 percent or more on savings accounts, you just walked into one of them, parked your money there and left with a big smile on your face. No need to worry about stock market swings or the rise and fall of the price of gold and silver or the prime rate set by the Federal Reserve Bank. You would get your 5 percent. These days the up-and-down stock market and a seemingly never-ending series of scandals in the financial world have caused many worried investors to return to banks and credit unions, despite historically low interest rates.
Today, banks offer online banking and other bells and whistles, but the vast majority of investors are going to pick a bank or credit union based on the savings rate offered. For the most conservative investors, those who want no risk and have decided they trust banks because of Federal Deposit Insurance Corporation backing, the low rates offered these days is an incredibly frustrating reality. But finding a bank with the best savings rate takes more than knowing your account's annual percentage yield. It also helps to know how the financial institution you choose compounds interest and how your earnings will be affected by the length of time you keep your money in the savings account. Here are some tips to help you get the best interest rate on your savings account.
Pick Up The Phone
If you are a very conservative investor and you have decided you want to open a savings account, you may want to stash your cash in a hometown bank because you want to stand in front of a real live bank teller. Call banks and credit unions where you live and ask what interest rates they are offering. You should also call national banks that have branches where you live. This way you can use their automatic teller machines wherever you happen to be.
If you just want the best rate and don't care where your bank is located, you have got to shop online. To find the best rates at banks anywhere in the United States, check out Bankrate.com, Money-Rates.com. Online banks don't offer in-person banking, of course, but the vast majority of them are FDIC-insured, and banking online allows you to bank anywhere and at any time. More importantly, online banks usually offer better savings rates and lower fees because they have fewer employees, need less space and maintain lower expenses overall.
If you choose an online savings account, keep an eye out for rate fluctuations. Expect small fluctuations, but if the rate drops significantly, consider moving your money. Also keep in mind that online banks aren't for everyone. If you get paid in cash, make frequent deposits and withdrawals or don't own a computer, you may want to do most of your banking at an institution with walk-in branches and plenty of ATMs.
At many banks, including many of the largest commercial ones, the more money you are willing to deposit, the better savings rates you are likely to be offered. This is true of money market savings accounts, which have terms that are slightly different from regular savings accounts. The difference in the savings rate may be only a few tenths of one percentage point, but that can make a difference over time.
Know What You're Getting Into
Read the fine print. You probably don't want to, but you should before you open a savings account. A higher savings rate understandably is a big attraction, but the fine print is where you learn about the penalties and fees that you might have to pay if your balance drops below a certain amount or if you have an emergency and need money and must withdraw all of it. It's also where you will learn that federal banking laws restrict the number of monthly withdrawals that can be made from savings accounts.
Whether you are young and are just starting to plan your financial future or you are retired and are looking for a safe haven for some of your cash, it makes sense to do your homework to find the best savings rates available. Sure, savings rate are low, but not doing your homework can cost you hundreds or thousands of dollars over time.