Best Savings Rates and Accounts in November 2018

Why are Savings Accounts Better?

Online savings accounts are very mainstream these days and have been around for about two decades now. There are many features about an online savings account that make banking so much easier than a traditional brick and mortar savings account. Plus, the interest rate earn on an online account is so much higher than an account offered by a brick and mortar bank.

Savings accounts in general earn a lower rate than certificate of deposit accounts but you have access to your money when you need it. You can access your money in a certificate of deposit but you will pay an early withdrawal penalty if you do so.

Savings accounts are a good way to save for unexpected expenses or can be used for an emergency account. Experts recommend having at least six months of expenses stashed away in an emergency account.

Savings Account Features

Federal law, Regulation D, only allows for 6 withdrawals from a savings account per billing cycle. If you constantly go over that amount your bank or credit unoin is allowed to switch your account to a checking account. Most checking accounts earn a lower rate than savings accounts.

We actually recommend having a savings account, checking account and also certificates of deposit, each is designed for a particular need.

Online savings accounts earn a much higher interest rate than regular savings accounts. The reason being, with traditional brick and mortar banking there are higher costs to maintain branch locations. If a bank only has an online presence the savings are tremendous and they can pass the savings onto depositors in the form of higher interest rates.

Why Use an Online Savings Account?

The ease and convenience of online banking is the second reason to stick with online accounts. You can access your accounts online to view balances, pay bills, transfer money between accounts. One of the greatest features is mobile deposit. You can take a photo of a check to deposit it into your account.

Traditional Savings Accounts vs. Online Savings Account

There are many reasons to choose an online savings account over a traditional savings account. Many reasons we mention above.

Right now, the best online savings rate is more than 10 times the best brick and mortar savings rate. We don't expect this to ever change because online banks have lower costs.

Compound Interest on a Savings Account

If you haven't heard of compound interest you really need to read this next paragraph. Compound interest is interest calculated on the savings account principal and interest already earned. Compound interest is the most powerful aspect of a savings account.

When you open a savings account make sure to see when a bank or credit union "compounds the interest." Finanical institutions greatly differ on when the compound interest. The more frequently interest is compounded the more money you make. Some finanical institutions will do it daily, some compound monthly, some compound quarterly or even annually.

Do you pay income tax on interest earned on a savings account?

The answer is yes, interest earned on a savings account is taxable. The finanical institution you have an account with will send you a 1099-INT with the amount of interest you earned. The tax rate you pay will depend on your tax rate which depends on how much income you had any given year.

How to Open a Savings Account

The best and easiest way to open a savings account is online. You will need several pieces of information to open an account. There are Federal laws designed to prevent money laundering which drive most of the process these days.

Information you will need to provide a bank or credit union to open a savings account include:

• Full Name
• Date of Birth
• Social Security Number or EIN for businesses
• Proof of Address
• Phone number
• Email address and tax identification number (such as a Social Security number)
• Drivers License or Passport

Should I Designate Beneficiaries when I open a Savings Account?

Most banks or credit unions require you to designate a beneficiary when you open an account. The person(s) you name as the beneficiaries will inherit the money in the account.

Funding a Savings Account

If the savings account has a minimum deposit requirement, you’ll need to deposit at least that much money in the account. You can do this by initiating a bank transfer, sending or depositing a check or using a wire transfer.

Not all banks require a minimum deposit but for the banks that do you might also be able fund the account for some period after the account has been opened.