The paperwork that comes with opening a new savings account can be potentially overwhelming and intimidating. But it doesn’t have to be! Greg Spadea, Director of Retail Deposits at Sallie Mae, and Martha Holler, Sr. Vice President of Communications helped review a few of the terms you need to understand.
1.) Annual Percentage Yield
This is the number one thing you’ll see with saving accounts and may also be stated with checking accounts that earn interest. This number tells you the actual amount you may earn on the account by calculating the interest rate across a year’s time. This is important because interest rates can change daily. The difference between APY and the average percentage rate (APR) is that yield takes into account compounding interest.
2.) Compound Interest
Compounding interest is one of the most exciting parts of interest rates. It means interest earned on interest. Adding this amount to your earnings can increase your earnings quite a bit over time. Be sure to look at the frequency. Compounding interest may be done at certain intervals. For instance, interest could be calculated monthly, quarterly or annually. Use online calculators to figure out how this will effect you based on the amount you’re saving.
3.) FDIC Insured
This is the difference between a bank and non-bank products. Also, having your money insured by the Federal Deposit Insurance Corporation (FDIC) means that if the bank becomes insolvent or no longer a viable entity, your money will safely be returned to you. If FDIC does not appear, you should approach with caution. If a bank becomes the insolvent, up to $250,000 per institution of your money is protected.
*Insolvent means that the banking institution is no longer financially viable or able to give back the money they are holding.
If you are going with a credit union for your savings account, look for the NCUA symbol. NCUA is the National Credit Union Administration. If you do not see it listed, you may be looking at product and not a checking or savings account. Many financial institutions look like banks, but do not have insurance to protect your money.
5.) Minimum Balance
Sometimes banks may require you to maintain a minimum balance to avoid fees. On a checking account, this fee can sometimes be thwarted by utilizing direct deposit services. Savings accounts are a bit different. If the fee exists, you may be able to avoid it with automatic deposits of a certain amount. Excessive withdrawals fees might exists for a savings account if you withdraw money more than 6 times in a month. This could cost you an average of $15 per excessive transaction.
Note: While the terms are generally standard, the amount of associated fees may not be. Always read terms and conditions for the bank accounts you have and the ones you’re considering opening. You can have terms printed at brick at mortar banks (ones with physical locations). Online banks can email this document to you. You may also be able to call the bank’s customer service center to get questions answered or direct you to where to find the answer on the bank’s website.
Originally posted on iGrad.com