Should You Open a New Savings Account in 2024?

Are you thinking about opening up a new savings account in the new year? Putting more money into a high-yield savings account may seem like a smart move for your personal finances. After all, who doesn't want a larger sum of money in the bank? 

Before you rush into getting your account open, though, there are a few questions you should ask first. 

What savings accounts do you have already?

A savings account is usually used for specific purposes. For example, you may want a savings account to save for vacations, a wedding, a home down payment, or any other big purchases you can't pay for at once. You should also have one for emergencies. 

If you don't have money set aside to cover unexpected expenses or if you have short-term goals you're saving for over the next few months to the next five years, then you should open an account for your rainy day fund and each of those goals.

It's best to have a dedicated savings account for each financial target you have, so you can track your progress and keep the money separate. That way, you're less likely to spend it on other things. 

When will you need the money you're saving? 

The next big question to ask yourself is when you'll need the money that you're saving up. 

If you want it to always be accessible, then a savings account is generally the best option. Your money is safe in these accounts because they are FDIC-insured, and you are free to withdraw it as needed.

If you'll need the money in a few months or years, though, there are other options, such as a certificate of deposit. CDs require you to commit to leaving money invested for a period, which usually lasts from three months to five years or so. You get a guaranteed rate of return for the time your money is invested. So, if you bought a 5-year CD at 3.90% APY (which is what Capital One is offering as of January 2024), you'd be guaranteed to earn that much on your money for five years. 

CDs tend to offer a better rate than high-yield savings accounts, and while savings account rates are variable and will go down if rates fall, you get a promised return with a CD and you can't lose your money since these accounts are FDIC-insured. You do face a penalty for early withdrawal, though, so a CD would make sense instead of savings only if you wanted to maximize (or lock in) your returns and knew you wouldn't need the money for a while.

When does a brokerage account make sense? 

Finally, if you expect you won't touch the money for at least five years, you could be better off putting the money into a brokerage account and investing it in the stock market where you could earn higher returns. Investing in the market for the short term isn't a smart choice, since the market could crash and you could get stuck having to take out less than you put in (and permanently losing the money you can't make back if you don't have time to wait for a market recovery). 

If you won't need the money for a long time, though, you could put it into an S&P 500 fund and possibly get a much better rate. The S&P 500, which is a financial index made up of 500 large U.S. companies, has earned 10% average annual returns over the long term. It's rare for savings accounts to earn much more than 4% or 5% (and that's in a high-rate environment).

Ultimately, if you have a need for liquid cash and can't risk losses or tying up your money, opening a new savings account might make sense in 2024 if you don't already have an account dedicated to that goal. But don't assume savings is the right place to put your extra cash, as there are plenty of great options available that could help you earn a better rate.