Chapter 1: Where To Open Bank Accounts
Chapter 2: Which Type of Bank Account Should You Open
Chapter 3: Bank Account Interest Rates
Chapter 4: Bank Account Charges and Fees
Chapter 5: Online Banking
Chapter 6: Bank Account Facts
Interest Rates
One of the main factors you consider before opening a bank account is the interest you would be earning on the money kept in the account. It might seem obvious to choose an interest bearing account, but sometimes a no-interest checking account may prove to be more cost-effective.
Interest Paying Accounts May Cost More – A lot of banks offer an interest-paying account, without a minimum balance requirement, by charging an annual fee. Considering the rates of interest on savings and checking accounts, which is around 2% to 3% per annum, the returns you get from these interest-bearing accounts are very small when compared to the fee you pay.
Some banks also offer to waive the fees and other charges if you maintain a steady higher account balance. But when you maintain a higher amount of balance to avoid paying a fee, you sometimes end up losing your purchasing power.
Considering a Certificate of Deposit – Certificates of deposits fetch you a higher rates of interest if you are willing to part with your money for a certain period of time. The tenure for a CD can range from 3 months to 5 years, and the interest rate increases with increase in tenure.
One important point to check when opening a CD is if the interest rate is fixed or variable. In case the rate of interest is fixed, you will gain when the rates fall but lose when they go up. Another thing to check is if the interest is compounded daily, monthly, quarterly or yearly. To get the best returns, opt for a long-term CD, in which the interest is compounded frequently.
The most important rule to remember when considering your interest is – your cost for maintaining the account must never be more than the interest you earn. Find the banks that offer competitive interest rates and charge the lowest fees.
Letter of Comment