Lessons Learned: Real-Life Examples of Costly Savings Account Mistakes

It was my first time opening a savings account. Could you blame me for making a few mistakes? Granted, they cost me hundreds of dollars, and I saw red the first time my bank charged me three $35 back-to-back overdraft fees, but hey -- a learning experience. Right?

Riiight.

Learn from my mistakes, so you don't have to make the same ones. Here's how to avoid common savings account mistakes, beginning with the most frustrating of them all: overdraft fees.

1. Overfunding savings and underfunding checking accounts

Weird for a personal finance writer to advocate for taking money out of your savings account, but bear with me. When I first opened a bank account, I underestimated the potential for overdraft fees. I overfunded my savings account and, as a result, underfunded my checking account.

Unbeknownst to me, my bank let me overdraw my account and charged me $35 per overdraft. I remained unaware I'd overdrawn my account until I received my monthly statement -- by then, I'd overdrawn three times and owed a total of $105!

You might be tempted to skimp on padding your checking account because your savings account pays interest. But most savings account interest rates are low. A single overdraft can eat into your returns and then some.

To avoid overdraft fees, consider padding your checking account balance with money you'd otherwise put in savings. Or, switch to a no-overdraft bank. You could save hundreds.

Tip: These days, banks charge less for overdraft fees. However, some banks are more upfront about fees than others. Many banks, including SoFi and Discover®, don't charge overdraft fees at all.

2. Failing to maintain minimum balance requirements

On the flip side, banks have charged me for underfunding my savings account. Some banks charge you a fee for failing to maintain a minimum account balance. The irony of this fee is it can cost savers more savings account interest than they'd earn in an entire year.

Say a bank charges you a modest $10 minimum account balance fee for not leaving enough money in your account. If your original account balance was $1,000, that's 1% of your savings. According to the FDIC, the average savings rate is 0.46%. With a typical savings rate, it'd take you over two years to recover from that minimum account fee!

Be wary of banks with minimum balance requirements. Alternatives exist. Many of the best high-yield savings accounts (HYSAs) charge $0 per month, even if your balance is low.

3. Putting savings into low-interest accounts

For once, FOMO had it right. I spent five years stuffing my savings into low-interest accounts because I didn't realize interest rates mattered. Granted, rates were low across the board, but that's not true anymore. The Federal Reserve has raised the federal funds rate big time, and banks have followed suit, raising savings account rates.

Even if you don't deposit much, the difference between putting money in a low-yield savings account and a high-yield savings account can be measured in the thousands of dollars.

Say you have $10,000 to deposit. In an account with a 0.50% APY, that money would grow to $10,513.60 in 10 years. But in a modern 4.00% APY high-yield savings account, that money would grow to $14,908.33.

I'd be lying if I said savings accounts were for everyone. Even HYSAs are best suited for short-term savings or as part of a diversified investment portfolio. Banks change rates all the time -- an account that offers a 4% return now could offer half that 10 years from now.

It's not a terrible idea to toss savings into a high-yield savings account and call it quits. Cash in the bank is typically guaranteed up to $250,000 per account owner, the FDIC insurance maximum. But for better yields, consider looking into savings account alternatives. The costliest savings account mistake could be opening a savings account when another account type would move you faster toward your financial goals.