Sometimes it feels like my savings are going nowhere. I sock away a reasonable chunk of my salary, but it’s not really moving upwards as I would like. I mean, I bank my hard earned dollars hoping to get the best returns possible and grow my savings. But nothing. I’ll admit that one personal finance mistake I made in the past was to open savings accounts without doing any due diligence. But now that I look back, I realised that the best approach would have been to compare savings accounts so that I could have maximised my returns.
Now that I’m a lot older (read wiser), the steps that I should have taken are so clear. The best way to compare bank accounts is to create a list of the accounts that are available and create a list of the specific characteristics that can be used to eventually used to rank them. Admittedly, this can be a tedious process simply because there are so many options. But, the toss up is that it can save you in the long run and enable your savings to grow a lot faster.
Why Should I Compare Savings Accounts?
There are so many places that you can save your money that thinking about it will give you a headache. Most financial institutions offer savings, chequing, business and investment accounts. But not all savings accounts are created equal.
Depending on where you live, commercial banks set their own deposit rates, hence creating a situation where savings no longer attract desirable interest. If you add inflation and bank fees into the equation, a rather unfavourable mix can be created, which is not in your best interest. This is head reason why you should compare savings accounts.
By taking the time to assess the options that are available to you, you are ensuring that your money can grow so that you will benefit in the long run. Commercial banks are a good option, but unfortunately they are businesses, and they have a greater responsibility to their shareholders. So whatever they offer to you as a deal, will benefit them in some way.
Credit unions, are a good idea as well, but they too have their short comings. But, they are an alternative to banks and your role in the institution is that of a member. Members receive dividends and have the option to vote at annual meetings. Do your homework!
Compare Savings Accounts
In addition to creating a list of financial institutions, to compare savings accounts you should create a profile of the financial institutions, list the savings accounts they offer and detail each account’s features. You will also have to note the type of account, monthly fees, minimum balance requirements and access options.
Imagine that you are a business person looking to create a relationship with a new business. Before you start working with that business, you will research them and see what their background is. This also works when you are comparing savings accounts. Seeing what happened a few years ago when the “big banks” failed, this is a no brainer.
Types of Bank Accounts
Bank accounts do not really vary that much. For individual customers, most financial institutions provide savings and chequing accounts for day to day use. There are also choices of money market funds accounts and time deposit accounts. They might be called by different names, but they are all based on the same principles.
Features are important because they are the perks that are used to further entice you to choose the account. With some accounts you can pay bills online, receive free annual statements, make free withdrawals and receive a free ATM/ Debit card. In your comparisons, you will see that some of these features are really not that special, because they are standard offerings across all accounts.
This is what means the most to me – monthly interest. How much will I earn on my savings before and after taxes? In recent years, the deposit rate has been reducing rapidly and my savings have not grown as they would have in the past. Accounts with higher interest rates usually lock you in for a few years.
Bank fees are evil and they are ridiculous. Remember the time that I closed my account? It was all started by a crappy monthly service charge. With some accounts you have to pay for everything. You will be slapped with a fee for withdrawals, deposits, cheques, over the counter transactions and statement printing. Just be on the alert, because when additional fees are to be added (which they will be), you may not be consulted or forewarned.
Minimum Balance Requirements
Don’t let your account balance drop to less than the minimum balance requirement or else! Yep. This happened to me a few years ago. My account balance dropped below the minimum balance and I was charged $16. Fortunately, the bank reversed the charge because they did not notify their customers and it caused a big uproar. But, they reinstated it after making an announcement in the newspaper.
These days ATMS, internet and mobile banking are common methods of accessing accounts and completing transactions. Because of these advances, financial institutions are offering these services for free. The downside is that the traditional modes of doing business ( face to face tellers) attract all types of fees depending on your account.
How to Choose the Right Savings Account
It’s possible that all savings accounts might not meet all of your needs, but at least one of them will come extremely close. Check out our handy infographic which details what you should look for when choosing a bank account. Still not comfortable? Consider other Before you make your final decision, always keep your needs for the account in the forefront.
One of my financial housekeeping tasks for the end of this year is to assess my savings options. I’ve already noted that what I’m doing now is not enough. Yes I’m saving, but inflation will significantly counter the little interest that I’m earning in the years to come. My tentative plan is to look at long term savings options such as savings bonds, treasury bills and maybe even money market funds. They may carry more risk, but the rewards are greater.
Are you on the hunt for a loan or mortgage? Take a look at our Borrowing Money Guide and make the right decision when you are borrowing.
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