SAVINGS ACCOUNT

annual percentage yield

(APY); the amount of interest you will earn in one year from a savings account

When selecting a savings account, you should consider the following:

Are there penalties and fees? You could pay a penalty if your balance falls below a certain amount, or you may pay fees to obtain a money order. Read the fine print before you open an account. Is there a minimum balance that must be maintained? What is the interest rate? What is the interest threshold? Remember, this is the balance you need before the bank starts paying interest. What are the variable interest rates? These are the different interest rates paid for different size balances. A higher savings account balance may earn a higher interest rate. What is the annual percentage yield (APY)? This is the amount of interest you'll earn in one year from a savings account. The APY includes the effect of compounding. The higher the APY, the more your money will grow.

Credit Union Savings Account

As you learned earlier, credit unions are like banks, but they are created by a large company or organization. They tend to offer higher interest on savings accounts.

Basic Savings Accounts

Basic savings accounts at banks offer the lowest interest rates, usually about 2 percent. They have few restrictions on access to your money, and usually they don't require minimum balances.

Opening a savings account is similar to opening a checking account. After you've compared your options for a savings account and selected the best account for you, follow these steps:

Gather the required information: date of birth, Social Security number, home address, and telephone number. Choose a director for the account. If you are under the age of 18, you'll need a director on the account, usually a parent. Go to the bank to sign the necessary bank forms. The director of the account must sign the forms, as well. Fill out a deposit slip and deposit at least the minimum amount of money.

High-Yield Savings Accounts

High-yield savings accounts are like basic accounts, but they have more restrictions on how often withdrawals can be made and typically require a minimum balance. These accounts may offer 3 or 4 percent interest.

Money Market Accounts

Money market accounts are like high-yield accounts. They offer a higher rate of interest, but you must start with a large deposit and there are restrictions on how often you can withdraw money.

Online Savings Accounts

Online savings accounts are much like basic bank accounts, but they offer higher interest rates because they operate online and don't have the overhead that standard banks have.

Tools and Services

Online statements allow you to view your balance and transactions online. ATMs allow you to withdraw money. Online savings plans help you set goals and track your progress. Transfers allow you to move money to other accounts. Direct deposit makes it easier to add money to your account. Automatic transfers allow you to regularly move a certain amount of money from your checking account to your savings account.

money market account

a savings account that offers a higher rate of interest when you make large deposits

There are many savings options, and they all fall into five main categories:

basic savings accounts high-yield savings accounts money market accounts online savings accounts credit union savings accounts

variable interest rates

different interest rates paid for different size balances, with higher balances earning higher rates

However, if you plan to keep the money in a savings account for one year or more, you would want a different type of savings account. Before you select an account, think about:

how long you'll be keeping your money in the account; how often you'll want to withdraw money; how much money you'll keep in the account.

interest thresholds

the minimum balances before the bank begins paying interest