When it comes to savings accounts, it seems like all anyone talks about these days is their annual percentage yields (APYs). This isn’t that surprising, because the APY dictates how much interest you earn on your funds. But here’s a secret no one tells you: Finding the highest possible rate really isn’t worth your time. Here’s why I don’t bother with it.
How savings account APYs work
Banks want people to keep their money in a savings account because then they can use it to help fund loans for other customers. When the borrowers pay back their money with interest, banks pass along some of that interest to savers in the form of an APY to encourage them to keep doing business at the bank.
Most banks offer one standard APY for all funds in the account, though some require you to keep a certain amount in the bank to earn interest, or have a tiered APY system. But no matter how your bank operates, its terms are never set in stone.
You could spend hours combing through every bank account on the internet looking for the one that offers the highest possible APY. But the next day, rates could change and a new savings account could be on top. This is especially true when APYs are falling or rising quickly. You usually see this when the Federal Reserve makes changes to the federal funds rate, as it’s done a couple times in the last couple of months.
It doesn’t make sense to open a new savings account every time you find a better deal. What you ought to do instead is look at APY as just one piece of the puzzle. A high APY is great, but if your account is 0.01% behind some of the other top savings accounts, it’s not going to make a huge difference in the long term.
A savings account with a $1,000 balance would only earn $0.10 less in a year with a 3.99% APY compared to a 4.00% APY. And if you’re choosing a savings account based on APY alone, you might be ignoring other important factors.
APYs aren’t the only thing that matters
When choosing a savings account, you also want to keep the following in mind:
- Fees: What can the bank account charge you for? Do you have to maintain a certain balance to avoid a maintenance fee? Does the bank charge you if you exceed a certain number of monthly withdrawals?
- Accessibility: Does the savings account come with an ATM card or any other means of directly withdrawing your cash? If not, how long will it take to move funds to another account or another bank?
- Banking tools: Does the savings account have a user-friendly mobile app and online banking tools? What about any budgeting resources?
- Customer service: Is it easy to contact the bank if you need help with your account? What are its customer service hours? What do other customers have to say about their experiences with the bank?
You should try to answer these questions when comparing savings accounts. You can usually find this information by checking the bank’s website, especially its fee schedule, and looking for customer reviews. When in doubt, you can always contact the bank directly with questions.
Go with the account that checks most of your boxes. You may have to compromise a little, like forgoing an ATM card if the savings account offers everything else you’re looking for. It’s ultimately up to you to decide which features are most important.
And this isn’t to say you shouldn’t shop around for a new savings account once in a while. Every couple of years, it doesn’t hurt to take a look at what’s out there to see if it’s better than what you have. When you are ready to see what’s out there, check out some of our favorite savings accounts. They all offer minimal fees and APYs that are well above the national average.
But don’t move your money around unless you think it’s going to make a substantial difference to your savings. Making an extra $5 a year in interest probably isn’t worth all the hassle involved with switching banks.
