Savings Accounts Feel Like a Scam

The banks are trying to pull a fast one on the consumer.  Even those of us who are trying to save are having the wool pulled over our eyes.  It’s a conspiracy, I tell ya.

Yesterday a friend asked me to help with some finance articles – one about savings accounts in particular.  Over the years, our family has had several “savings” accounts (in traditional banks and in other financial institutions as well).  The ones that we opened away from traditional accounts had much higher interest rates – or so I thought.

As I began to dig out information for her article, I discovered some interesting facts.  It made me aware that like many things in life you have to know exactly what you are getting in order to compare it to other things like it.

1.      What is the monthly or quarterly interest rate?  Most traditional banks accrue interest on the quarter, so that’s easy enough to figure out.  The other institution (an insurance company “bank”) gave us a nice interest, but it was a total yearly interest.  In other words, that rate was divided by 12.  When I did the math (after having the account for ten years), I felt like I had been had.  All this time I was bragging about how much more interest that company was giving me.  Although the interest rate was still a small amount better, it was no longer worth the hassles that came with not having a physical location to use.

2.      Know the minimums.  Every single bank will have different requirements for a minimum balance – but most will charge a fee for going below that balance.  You are better off just closing out the account than to go below minimum.  The fee will eat up every penny you may have earned (and then some).

3.      Look for hidden costs.  One of the accounts we have only allows for 6 withdrawals (in any form) each month.  Every one after that costs a fee.  It wasn’t a problem for us because we didn’t plan to withdraw that often.  It is still important that you know and understand the terms of your account.

4.      Ask for discounts or upgrades.  Some banks will match competitors’ accounts, if you prefer to work with one over another.  Few will go up on the interest rate (but it doesn’t hurt to ask) unless you have a substantial amount of money.  You may be able to get fees waived if you do an automatic deposit each month or something along those lines.

Savings accounts are not where you want to build your nest egg.  They are designed for short term, easy access storage of funds that you don’t want co-mingled with checking funds (either because you lack the discipline or because it’s easier for record keeping).  No matter which savings account you put your money, you will not make a fortune from the interest.  Even in the prime of savings interest rates, I don’t think they went much over 3%.

If you do choose a savings account then shop around.  Read the fine prints.  Ask for things to be explained out for you – month to month – so that even your ten year old could understand.  It’s your money.  If the bank employee isn’t willing to take the time to explain it (or to find someone who CAN explain it) then you don’t want to bank there anyway.