Perhaps most importantly, consider the opportunity costs that you never see in your transaction history—but which still affect your finances.
Opportunity Costs
Some of the greatest costs you pay in a savings account aren’t bank fees—they’re invisible. When you deposit money with a bank, there’s an opportunity cost: Instead of doing something else with your money, you place it in a savings account and earn whatever the bank pays. That’s not necessarily a bad thing, but it’s critical to understand that there are pros and cons to every decision you make. Other bank options: Savings accounts pay interest, but you might be able to earn more without switching banks. For example, certificates of deposit (CDs) typically pay higher rates if you commit to locking up your cash for one year or longer. The difference in rates may be small, but on large balances, the dollar amounts can be significant. Debt repayment: If you owe money on credit cards, auto loans, or a home loan, you’re probably paying interest on those loans. In most cases, the interest rates on loans are higher than the rates you earn in a savings account. That doesn’t mean it’s foolish to keep cash in savings, but you may have an opportunity to improve your finances. Long-term goals: If you’re saving for a goal that’s 10 years or more in the future, a savings account might or might not be the best place for your money. If you’re comfortable with the risks related to other types of investments, you may be able to grow your assets. Savings accounts are safe—and that may be exactly what you need—but inflation may eat away at your money over time. Teaser rates and inertia: You can also pay opportunity costs when you open an account with a high (temporary) promotional rate. Teaser rates can get you in the door, but they don’t last forever, and switching banks is a pain. It may be best to choose a bank that consistently pays high-interest rates, instead of chasing rates from bank to bank. That said, if you know of a high-quality bank that pays a bonus on savings accounts, you may be able to earn an extra year’s worth of interest by taking advantage of bonus offers. The “spread”: The costs of using a bank account aren’t always obvious. Banks can earn profits as long as they manage risk and take advantage of a spread. For example, if banks can lend money at 10% and pay 2% on savings, they come out ahead. Banks earn revenue in a variety of ways, and bank fees are just one method.
Maintenance Fees
Some banks charge you merely for the privilege of having an account with them. Although somewhat rare, monthly maintenance charges on savings accounts eat into your balance, and they can be particularly damaging when interest rates are low. Fortunately, it’s easy to find banks that don’t charge monthly fees.
Online banks rarely have maintenance charges. Local banks and small credit unions tend to be customer-friendly institutions that don’t nickel-and-dime you.
However, these fees exist, so it’s critical to read fee disclosures before you open an account. For example, Bank of America Advantage Savings accounts charge $8 per month (but you can qualify for a fee waiver by keeping at least $500 in your account or meeting other criteria). Maintenance fees and other bank fees are especially problematic if you use multiple savings accounts to organize your finances.
Excess Transaction Fees
Bank customers are often surprised to learn that they may not have unlimited access to their funds. Federal law previously limited certain types of withdrawals from your savings account to six per month. In April 2020, in light of the coronavirus pandemic, the Federal Reserve amended the rule to let banking institutions suspend such limits. However, if your bank still imposes them, this can includes transfers to your checking account and other types of transfers. Withdrawals at an ATM, with a teller, or by check request typically do not count toward that limit. Six transfers are more than enough in most cases. But if you ever need to go above that limit, your bank may charge a fee. For example, Ally Bank charges $10 for excess transactions, and other banks charge similar fees or nothing at all. That said, after too many excessive transactions, banks may close your account or convert it to a checking account.
Other Fees
It’s possible to pay a variety of additional fees, depending on what happens in your account. For example, banks may charge to provide paper statements or send replacement ATM cards—services you may never need. Also, depositing bad checks into your account can lead to fees, even though it wasn’t your fault somebody bounced a check.
