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Should You Invest or Put Your Money Into a Savings Account?

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Savings-Accounts-Worth
Nadav Shemer
Nadav Shemer
Jul. 09, 20244 min read
The stock market is up 13% year-to-date, house prices are high, and your friend is telling you to buy Bitcoin. With so many ways to invest money, is a savings account worth considering? We run the ruler over the pros and cons of opening an online savings account.

Pros of a Savings Account

  • Less risk

Whenever you invest money in something, you run the risk of losing some or all of your funds. With a savings account, the risk is minimal and you get free insurance. Essentially the only ways to lose money from a savings account are if the bank goes bust or if you leave your username and password just lying around somewhere. The good news is that all savings accounts in the United States are insured by the federal government up to $250,000, so even if your bank crashes, you’ll still get your money back. As for the password, the banks know we don’t always do a good job of protecting ourselves, which is why most of them make us go through multi-factor authentication every time we log in.

  • Competitive rates

You won’t find double-digit rates on a savings account, but you don't have to settle for less than 1%. The average national rate on a savings account is 0.10%, but online banks offer as high as 2.25% APY. That’s actually better than the rate of inflation, which is forecast to land at around 2% in 2020. If you’re planning on leaving your money in a savings account for a while, you’ll also benefit from compound interest, which is basically interest on interest.

BankAPY24/7 Support
Sofi 4.60%No
Synchrony 4.75%Automated telephone service available 24/7
Chime 2.00%Yes


  • Checking features

These days, many online banks offer hybrid checking-savings accounts, or money market accounts with checking features. By hybrid checking-savings, we mean a savings account that includes checks, a debit card, and deposits and withdrawals. This is very convenient, because it means you can save money in the knowledge that you can draw on these funds whenever needed.

  • Emergency funds

One of the good things about a savings account is you can get access to it in the case of an emergency. Many people actually use a savings account as a type of emergency fund. Setting up a small recurring deposit of, say, $10 per month won’t cost you a lot, but $120 per year in deposits plus the interest earned on it means you’ll have a useful amount of money in your account after a few years. Hopefully you’ll never need to tap into your emergency savings fund, but if you do, you’ll be glad you have it and that you didn’t lock all your money up in assets or investments.

  • Applying for a credit card

One lesser-known benefit of having a savings account, at least for students or anyone who doesn’t have much credit history, is that it can help when applying for your first credit card. Whether you’re applying for a credit card from a bank, a retailer, or anyone else, the card provider will run a credit query to find out if you can be trusted to pay back the amount. If you don’t have a credit history, they will ask about bank accounts. At the very least, you’ll need to show you have a checking account. A savings account will strengthen your case.

Cons of a Savings Account

  • Fees

Unfortunately, some online savings accounts do come with fees ranging from $1 per month to sometimes as high as $50 per month. The good news is that most online banks give their customers the opportunity to have the fee waived. Some banks waive the fee if the customer keeps their balance above a certain amount, while others have alternative formulas.

  • Minimum requirements

The higher savings rates are generally reserved for depositors who agree to meet the minimum requirements, such as a minimum initial deposit or minimum balance. Minimum balances can range from as low as a few dollars to around as high as $10,000. Of course, even $10,000 is much cheaper than playing the stock market or investing your money in an expensive asset like property. It’s all relative.

  • Not the highest yields

As we mentioned at the top of this article, various investments potentially offer much higher yields than a savings account. If you have an appetite for risk, a good advisor, and a good sense for investments, you may be able to earn double, triple, or even 20x what you can earn on a savings account. 

  • CDs offer better rates

A certificate of deposit, or CD, is an alternative type of savings account offered by banks where the depositor agrees to lock in their funds for a certain amount of time, usually ranging from 3 month to several years. Generally speaking, the longer the customer locks the money in for, the better the rate. At time of writing, online banks were offering 5-year CDs with as high as 3.10% APY, higher than the highest savings rate of 2.25%.

Explore Leading Online Banks

1. SoFi Checking and Savings

With one of the highest APYs available, SoFi Checking and Savings offers a substantial advantage over traditional banks. In addition, you’ll benefit from no fees, free access to 55,000+ ATMs, and a user-friendly mobile app for convenient, on-the-go banking. Plus, SoFi’s robust security features, including FDIC insurance and two-factor authentication, ensure your funds are well protected.

Pros

Cons

  • No fees
  • High APY if you set up direct deposit*
  • No physical branches

SoFi Checking and Savings SoFi Checking and Savings Visit Site

2. Synchrony

Synchrony is an online bank offering high-yield savings accounts, CDs, and IRA CDs. It provides some of the highest APYs available, making it an attractive option for those looking to maximize their savings. With no monthly fees, a user-friendly mobile app, and comprehensive security features like FDIC insurance and two-factor authentication, Synchrony ensures a convenient and secure banking experience. Additionally, customers benefit from 24/7 customer service and the ability to manage their accounts entirely online or via phone. 

Pros

Cons

  • Wide range of savings accounts and CDs
  • High yielding APYs
  • No checking accounts
  • Not much in the way of other banking services

Synchrony Synchrony Visit Site

3. Chime® 

Chime is a fully digital financial technology company offering a user-friendly mobile app for managing money. It features no monthly fees, early direct deposit, and fee-free overdraft protection with SpotMe®. Chime provides access to over 60,000 fee-free ATMs and FDIC insurance for funds held through its banking partners. With comprehensive security measures, Chime ensures safe and convenient banking, although it lacks services like joint accounts and CDs. The Chime Visa® Debit Card is widely accepted, enhancing its utility for everyday transactions. 

ProsCons
  • Get paid up to 2 days earlyˆ with direct deposit
  • Fee-Free Overdraft up to $200* with SpotMe®
  • No joint accounts or secondary cards
  • No CDs

Chime® Chime® Visit Site

Verdict

Online savings accounts offer potentially decent returns with almost no risk. There’s no golden rule about how much to deposit in a savings account. Whether you have a few bucks to spare each month or thousands, you should strongly consider a savings account. If you only have enough money to open one type of savings or investment account, then a savings account is the safest option and gives you funds to draw on in the case of an emergency. 

For people with plenty of spare change, there is value in boosting your 401K and investing in higher-yielding investments like stocks or property. Nonetheless, it’s always worthwhile putting some money into a savings account each month, even if only a small portion of your overall funds, just to know you have something to draw on.

Still can't decide? Explore our full list of leading online banks here.

Nadav Shemer
Written byNadav Shemer

Nadav Shemer specializes in business, tech, and energy, with a background in financial journalism, hi-tech and startups. He enjoys writing about the latest innovations in financial services and products. He writes for BestMoney and enjoys helping readers make sense of the options on the market.‎

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