Making your Savings Account
earn for you

A savings account serves 2 main purposes: (a) it is a place to store your money securely and (b) it earns you higher interest in exchange for reduced liquidity.

Since these accounts require you to 'save' money by definition, they usually have minimum balance requirements and do not allow more than a small number of transactions a month.

Here are tips compiled by our readers on what to look out for in a savings account:

• Open a savings account in the same bank you have a checking account in, or vice versa. In fact, 'link' the two accounts (do not assume this will happen automatically - confirm it online or with the bank rep). This will typically enable overdraft protection on your checking account and allow the combined checking plus savings balance to offset any minimum balance requirements.


• Always check the bank account is 'FDIC insured'. FDIC stands for Federal Deposit Insurance Corporation. It is effectively a government guarantee that if your bank fails, the US government will step in and protect your deposit to a limit of $250,000 (you may yet lose anything over that). This is the highest level of safety you can find for your deposit.


• As a corollary to the above, do not keep more than $250,000 in any one savings account. Spread the money across multiple FDIC insured accounts.


• You will hear of an account type called the 'money market' account (MMA). This is yet a savings account, and is FDIC insured. It usually offers a higher, tiered interest rate, but also mandates higher balances and higher fees and penalties for excess withdrawals.


• Many banks offer an 'internet-only' savings account. Such an account can only be opened over the internet. Owing to the lower overheads involved, these accounts pay higher interest compared to regular savings accounts. In fact, they often pay higher than money market accounts too, without many of MMA's disadvantages.


• Most savings acounts do not give you the privilege of a checkbook. They also limit transactions to no more than 6 a month, not counting self withdrawals. So remember not to use your savings account for spending. If you need lots of withdrawals, open a checking account. Of course, low frequency transactions like sending money to parents in your home country can be done through a savings account.

So what's the recommendation?

I would recommend an internet-only savings account (as opposed to a regular savings account or even money market account) for liquidity and the higher interest. I would also recommend a second savings account in the same bank you have a checking account (for overdraft protection).

Some good internet-only savings accounts are from ING Direct, HSBC Direct and the Citibank Ultimate Savings Account.

• ING Direct
• HSBC Direct
• Citibank Ultimate Savings Account

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