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Savings accounts provide a safety net, a place where your money can earn interest or dividends, but still be "liquid," meaning you can get it quickly. It's where you might keep your vacation money, your three-to-six-month savings for emergencies, or your next tuition payment.

Not all savings accounts are created equal. Dividend/interest rates, service fees, and transaction limitations differ from one institution to another. As you shop for a savings account, ask the following questions to find the safety net that will best protect your interests.

Is the institution insured?
Think of insurance as the cushion below your savings safety net. If the institution goes bust, your deposits--usually up to $100,000 at an individual institution--are protected. At a bank, you want to see proof of Federal Deposit Insurance Corp. (FDIC) insurance, says Warren G. Heller, research director for Veribanc, a Wakefield, Mass. bank-rating and research firm. At a credit union, look for a National Credit Union Administration (NCUA) insurance sticker or sign displayed prominently. If nothing is posted, ask why.
      State-chartered credit unions may provide private insurance coverage. If your credit union is privately insured, ask a member services representative for more information about your deposit insurance.

Passbook or statement account?
Many people remember passbook accounts from their childhood. A teller entered every withdrawal and every deposit of birthday money into your passbook.
      Today, statement accounts prevail. The institution mails a monthly statement that lists all transactions. If you have both your share draft/checking and savings accounts at the same institution, you'll usually receive one statement listing all accounts.
      Which is better? Older customers may prefer the familiarity of a passbook account. Statement accounts offer better terms, Heller says, but combined account information may confuse some consumers.

What is the dividend/interest rate?
While lower than for other investments, a savings account's dividend/interest rate often is what entices consumers to one institution rather than another. Credit union savings accounts average 50 basis points--that�s half a percentage point--more than accounts other institutions offer. Ask the following questions:
  • What is the annual percentage yield (APY)? The Truth in Savings (TIS) Act requires all institutions to disclose APY. It reflects your potential earnings based on dividend or interest rate and frequency of compounding, and helps you do an apples-to-apples rate comparison.
  • Does the institution offer tiered rates?Tiered rates apply to different balance amounts. For example, balances up to $2,500 may earn 3.75%. Balances above $2,500 may earn 4.25%. If you deposit $5,000, half may draw 4.25% and half may earn 3.75%. Or, in some cases, you may earn the higher rate on the entire balance once you meet the threshold.
  • When does your money start earning dividends or interest? If an institution pays the day you deposit money into your account, you�re earning on your ledger balance. If it waits until a deposited share draft or check clears before it starts paying, you�re earning on your collected balance.
  • How often is the interest compounded?Accounts commonly compound on a quarterly or monthly basis.
  • What is the minimum balance required to earn dividends/interest?

What fees apply to savings accounts?
TIS also generally requires financial institutions to include fee information in statements. Check for these common charges:
  • Is there a charge if your balance falls below a required minimum?
  • Is there a fee for closing the savings account soon after it's opened?
  • Is there a monthly maintenance fee?
      A 1997 survey the United States Public Interest Research Group and the Consumer Federation of America conducted found that multi-state banks charge significantly higher fees than locally owned banks or credit unions. Very few credit unions charge a monthly maintenance fee. For a statement savings account with a $200 minimum balance, big banks charge an average monthly maintenance fee of $2.69, compared with $2.22 for small banks.
      Multi-state banks
      charge significantly
      higher fees than
      credit unions.

What transaction limitations are there?
Complying with federal regulations, some institutions may limit the number or dollar amount of your monthly transactions. Others may require direct deposit of your paycheck for you to qualify for free or reduced fees on savings or share draft/checking accounts.
      What's the bottom line? Convenience. You use a savings account for the quick access it provides you to your money. If one institution's rules make it cumbersome to conduct business, keep shopping.

What are the benefits of having multiple accounts with the same institution?
Institutions do make exceptions for customers having multiple accounts. Some may forgive the fee for an occasional bounced check. Others may offer more-lucrative rates. Still others may waive the monthly fee for a share draft/checking account if you maintain the required minimum in a savings account.
      The advantages and, again, the convenience may be worth consolidating your accounts at one institution. But first make sure the individual terms for each account meet your needs. If you're comfortable with how an institution handles your savings account, check out other ways it can help put your money to work for you.

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