Jan wants to save a $2000 gift from her grandparents, and add $50 per month as emergency funds. She has narrowed her search for a savings account to 2 banks, Bank A and Bank B. Bank A pays a fixed rate of interest, and Bank B pays a variable rate, but both rates are currently the same. What advice would you give Jan about how to choose an account based upon her own needs?I. The fees and services will make a much bigger difference than the type of interest while your balances are small.II. The more that you expect to save, the more you should think about what effect the interest rates might have on your finances.III. Choose the variable rate, because no matter what the fees are, if it goes way up, you could become richer.
Statements I and II are sound advice. With a $2,000 starting balance and $50 added each month, account fees and useful services can have a noticeable effect, while interest rates matter more as the amount saved grows. Statement III is not reliable: a variable rate can rise, but it can also fall, and high fees may outweigh any gain. Therefore, the best choice is I and II.
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