The Four Fine-Print Checks Before You Open a Savings Account

A rate in an ad is the best case. Your rate is what you earn on your whole balance after you meet every condition. The examples below are made up. They show how the fine print can change the result, not what any bank pays today.

Check 1: Is the money insured?

Look for the bank's name and the words "Member FDIC." The FDIC insures deposits up to $250,000 per depositor, per insured bank, for each account ownership category (FDIC). You can look up any bank in the FDIC's BankFind tool.

Some savings apps are not banks. The FDIC says a nonbank company is never FDIC insured by itself. Insurance can reach you only if the company places your money at an insured bank and keeps good records of who owns what. It does not protect you if the app company itself fails (FDIC). For an app, find the bank behind it. The Coverage chapter shows how.

Check 2: What is the rate on your balance?

Three kinds of conditions change the rate you earn. Here is each one with a made-up example.

A balance cap. Say an account pays 4.50% on the first $5,000 and 1.00% on anything above. On $5,000 you earn $225 a year. On $50,000 you earn $675, which is a real rate of 1.35%. The 4.50% is true, but only for the first $5,000.

A monthly deposit rule. Say an account pays 5.00% in months you receive a set deposit, and 1.00% in other months. On $20,000, meeting the rule all 12 months earns $1,000. Meeting it in only 6 months earns $600. A flat 4.00% account with no rule earns $800.

A promotional rate. Say an account pays 5.00% for 3 months, then 3.50%. On $20,000, year one earns $775. A flat 4.00% earns $800. The teaser account only wins if you move the money again when the promotion ends.

Ask what counts. A bank may accept only pay from an employer, not a pension or a transfer from your own account. If you cannot tell from the terms, ask the bank in writing.

Check 3: How do you get your money out?

For emergency money, you need to reach it fast, with no fee. Check the transfer time, any fee for withdrawals, and any limit on how many you can make.

Until 2020, a Federal Reserve rule capped certain savings withdrawals at six a month. The Fed removed that limit in April 2020 (Federal Reserve). A bank can set its own limit or fee. So read the account agreement, not just the rule. An account that charges you to reach your own cash is a poor home for emergency money, even at a high rate.

Check 4: What does the rate become?

Judge the account as it will be most months. Ask three questions:

1. If there is a promotion, when does it end and what rate follows?
2. If the rate is tiered, what do I earn if my balance drops?
3. If there is a condition, what do I earn in a month I miss it?

Banks can change a savings rate at any time. A rate that looks high today may be lower in six months. The Switching chapter on how long top rates last looks at this.

Who do these conditions help and hurt?

A condition is not good or bad. It is extra work for extra rate. Whether it pays depends on your life.

A monthly deposit rule is easy for someone paid by an employer every two weeks. It can be hard for a retiree whose income comes from a pension or Social Security. If those payments do not count, the top rate may be out of reach at any price. A plain account with a lower rate and no rules can then earn more.

A balance cap works the other way. It suits a small balance well. A $5,000 starter emergency fund can earn the full top rate. A $50,000 balance earns far less per dollar, as the example above shows.

A teaser suits a saver who will move the money again. It does not suit one who will forget.

What should you do before you open an account?

1. Write down the bank's name and check it in BankFind.
2. Find the full terms and read the rate section.
3. Work out your real rate on your own balance.
4. Note any end date or condition on your calendar.
5. Confirm how and how fast you can move money out.

Fifteen minutes now can save you a surprise later. The next chapter, a $100,000 plan, shows how to put the checks to work on a large balance.

Limits of this guide.

• Every rate and balance in the examples is made up.
• Account terms differ by bank and change over time. Read the current terms before you open an account.
• The Fed removed its own withdrawal limit in 2020. Whether a bank keeps a limit is the bank's choice.