Just a head’s up, this post is not short. It has a lot of important info though, so if you make it to the end, I promise to have a shot of cuteness waiting for you. 😉

So you’re looking to open a savings account. Yay! Whether you’ve checked out my post explaining what a savings account is or you’ve independently decided to take this step, I’m proud of you.

Now, on to the toughest part: picking an actual savings account.

It might seem like the most convenient account to open is the best. Many teens and young adults end up opening accounts in the same banks that their parents use. When I went to college, my dad and I opened an account in the bank that was closest to my college campus. Sure, these options may be easy, but you should consider more than convenience when it comes to your money. Very often, the big-name banks are some of the worst places to hold your savings if you want it to grow. More on that later.

So, what should you be looking at when choosing a place to hoard your pennies?

Fees

Probably the number one feature you should pay attention to when choosing your savings account is the fee structure. Let’s take a look at some of the most common fees that banks will build into their savings accounts.

Opening an account

Most major banks today allow you to bank with them at no up-front cost, but there are still a few that may require you to pay them to open an account. Unless there’s a really good reason for you to use such a bank that makes it worth $20-$30, I’d look elsewhere.

Monthly fees

Most big-name banks tack a monthly fee onto their savings accounts, and that fee might cancel out any benefit of a good interest rate. However, there’s usually a list of ways to minimize this fee or get around it altogether.

For example, as of this writing, TD Bank’s monthly fee for its Simple Savings account is $5. If you opt to receive your statements online only, that fee drops to $4.

If you also open a checking account with the bank AND set a recurring transfer between the accounts of at least $25 a month, you get to avoid the fee for twelve months. Even better, if you can keep a balance of at least $300 in the account every day, you won’t get charged a fee at all. This account also has age incentives on it, so people under 18 or over 62 get their fees waived automatically, regardless of how much is in the account.

Whew! That’s a lot to absorb. And that’s just TD’s Simple Savings. That bank has a couple of other options for people with more complex money situations, but the fees and minimum balances of these are much higher.

If you’re just starting to save, something that requires you to keep $300 in the account at all times or pay $60 per year may be a daunting obstacle.

Minimum Balance Fees

In the TD example above, we saw that a minimum daily balance of $300 would keep any Simple Savings customer from having to pay the monthly fee. This rule is fantastic until you spend a couple extra bucks and dip below that $300 mark. You’ll then be responsible for that fee for the month in which you slipped up. If you’re going to rely on a minimum balance to keep you from paying fees, you’ll need to keep careful track of the the money flowing out of that account. Look for a bank with a low (or no!) minimum balance.

Withdrawal penalties

Many banks have rules that cap the number of withdrawals you can make from your savings account. If you pull money out of the account more often, you might be slapped with a penalty fee up to around $10. Before you sign up for an account, know how often you’ll be allowed to withdraw money.

Early closing fees

Certain banks will charge a fee if you close your account before a certain date. Usually, this date is about 3-6 months from the day the account is opened, but the fee can be hefty — usually around $25. You should be sure that you can leave at least the minimum in an account until any waiting period is over.

Dormant/Inactivity Fees

Don’t let your money sit too long! Some banks will charge a fee of something like $5 if your savings or checking account has no deposits or withdrawals for a certain amount of time, often a year. This shouldn’t be a problem for a primary account, but if you switch banks, don’t forget to move your accounts within a year to avoid these fees.

Interest Rates

High to low

Some banks will offer a fantastic, way-above-average interest rate to new customers. You might think you’ve lucked out, only to discover that the rate plunges after the first six months or year of your owning the account. This may or may not matter to you, but if you’re choosing a savings account based mostly on how much interest you expect to earn, make sure you read the fine print about how the interest rate will change over time.

Online vs Traditional

When we talk about banks, many people jump to the big names: Bank of America, Wells Fargo, SunTrust, etc. These banks follow the traditional model of having brick-and-mortar locations you can visit to do business, but they all offer online banking, too. The thing is, although these banks might seem like the best places for your money, they often offer some of the worst interest rates out there. They expect you to get excited if they give out 0.5% on a savings account.

So what’s the alternative? Fully online banks. Banks with no physical locations can offer interest rates double or more of the traditional banks’. The major drawback to these accounts is that you must have another account outside the bank (usually a checking account) from which your savings comes and to which is goes if you need to access it. This means you’ll have to allow 3 or more business days for any money transfers out of them. Also, don’t go throwing your money into any online bank that flashes a pretty interest rate at you. These banks and their accounts still need to be analyzed based on the criteria above, but if you don’t care about having a big-name bank you can walk into, an online bank might be a good choice for you.

Bonuses

Banks are increasingly offering bonuses for opening accounts with them. Usually, these are chunks of money the bank gives you for opening an account and meeting some requirement(s), such as setting up direct deposit or depositing a certain amount of money. A nice bonus can make up for a lower interest rate, especially for smaller accounts.

Sources

The website MagnifyMoney.com allows you to compare accounts based on where you live and how much money you are looking to start the account with.  It also grades the banks based on how easy it is to understand their fine print, so you don’t get stuck signing a bunch of forms you don’t understand. It also publishes a monthly update on the best accounts based on interest rate and other factors. It’s a quick, free way to see what’s out there. I recommend checking it out, and I’m not even getting paid to say that.

Nerdwallet.com regularly posts articles highlighting some of the best accounts out there. It’s also a wealth of information about all things financial. The folks there are also not paying me to talk them up, but they do good work.

Final thoughts

Clearly, there’s a lot to consider when choosing a savings account, but don’t let it overwhelm you. It’s better to have your money somewhere than nowhere, and if you decide you’d like to switch banks in the future, you can. Find a bank and account that fits your life right now, and get to saving!