3 Mistakes To Avoid When Choosing a Bank Account, According to Ramit Sethi
Written by
Nicole Spector
Edited by
Molly Sullivan
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If you’re looking to open a new bank account to store your savings, you may narrow your options down to two types of accounts: a money market account or a high-yield savings account (HYSA). They have a lot in common — they both generate interest, they both generally allow you easy access to your money and they both, if with a FDIC-backed institution, provide coverage up to $250,000.
But, as financial expert and self-made millionaire Ramit Sethi discussed on his website, I Will Teach You To Be Rich, there are differences between a money market account and a HYSA. For example, the former usually comes with transactional features, like a debit card and/or checkbook, while HYSAs are more exclusively geared toward growing your money. To make the best choice for you and your money, be careful to avoid common mistakes when deciding to open a new money market account or HYSA.
Not Reading the Fine Print
When dealing with any transaction or onboarding process, it’s so tempting to quickly scroll through all the fine print and just get to the parts where you sign and submit. All that fine print is so repetitive, tedious and dense. But this stuff is important — it’s where you’ll learn everything about fees and requirements. A financial institution may blast promotional messaging about “no fees,” but often there’s a caveat if you, say, drop below a minimum balance requirement or let your account sit idle with no new deposits.
“Banks often hide important fee information in the account terms and conditions,” Sethi wrote. “Many people open accounts without understanding how maintenance fees work or what minimum balances they need to maintain. These fees can sneak up if you don’t keep the required amount in your account, turning your interest earnings into monthly charges.”
If you’re not quite grasping what the fine print says, copy the text and paste it into ChatGPT, then ask the AI chatbot to explain it all in simple language, without repetition.
Not Comparing the Interest Rates of Online Banks
When choosing a home for your savings, you need to find the bank account that will (safely, with FDIC backing) give you the highest interest rate. This will most likely be delivered by an online-only bank, not a traditional brick-and-mortar. Banks that operate exclusively online can afford to offer high interest rates because they don’t have high infrastructure or overhead costs as traditional banks do.
“Traditional banks often rely on customer loyalty and convenience, offering much lower interest rates than their online competitors,” Sethi said.
When searching for a new HYSA or money market account from an online bank, you’re going to be blasted with a lot of marketing from banks that suggest they have the best interest rate around. Who really has the best interest rate though, and on what terms?
“Taking a few minutes to compare different online banking options could earn you substantially more interest on your savings,” Sethi wrote.
Treating a Money Market Account Like a Checking Account
A money market account can act in some ways like a checking account, which is one of its appeals, but at their cores, the two are different beasts. Sethi warned against treating a money market account like a checking account. Doing so could slam you with fees.
“One of the costliest mistakes comes from misusing money market accounts,” Sethi said. “Despite their check-writing features, these accounts aren’t designed for regular transactions. Many people treat them like checking accounts and end up paying fees for exceeding transaction limits.”
Understand the ways in which your money market account works not only like a checking account, but like a HYSA. It likely limits the types of transactions, for example, whereas a checking account doesn’t.
At the end of the day, you may be wondering why your bank accounts, in terms of all the technical fine print, matter so much. Well, ultimately, it’s all part of building wealth. Consider Sethi’s wisdom here, “Managing your accounts effectively is just one piece of building a strong financial foundation.”
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