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If you have money to invest, but can’t commit to long-term investment vehicles such as a 401k plan or Roth IRA, a high-yield savings account or certificate of deposit could meet your needs. Each is a viable option if you’re seeking a conservative investment that won’t tie up your money for a long period of time.
American Express National Bank is one banking services company that offers both accounts, and may make sense particularly if you already have an existing Amex account, or if you’re seeking an account without a minimum deposit requirement.
With a high yield savings account, you earn a higher interest rate than a conventional savings account, but you can still access funds without incurring a penalty. A certificate of deposit differs from a savings account in that you agree to leave your money in the account for a predetermined amount of time, ranging from several months, to several years. The upside is that you earn a higher rate of interest. On the other hand, you face early withdrawal penalties if you take the money out before the term expires.
The application process is straightforward for either product. You must enter standard information, including your name, address, phone number, date of birth, Social Security number, driver’s license number, and your employer’s information. You can choose to open your account via electronic transfer from your bank or by mailing in a check. Before you transfer electronically, however, American Express will send two small test deposits to the bank you entered for verification purposes. Following the successful transfer, you are provided email instructions to confirm your account and complete the transfer.
Within a week of opening your account, American Express will mail you a welcome kit. Monthly statements are provided if you open a savings account, and quarterly statements are sent to you if you open a CD. When your CD nears maturity, American Express sends you a notice 10 days in advance of the maturity date – and unless you contact American Express, your CD automatically renews with the same term. There is also a 10-day grace period from the date of maturity in which you can withdraw funds without penalty.
- Varying Interest Rates. The high-yield savings account comes with a competitive Annual Percentage Yield (APY), and for a certificate of deposit, the APY ranges depending upon the term you choose.
- No Fees. There are no fees whatsoever with either option.
- No Minimums. You can open an account with American Express National Bank with as little as $1.
- 24/7 Account Access. You can access your account anytime and anywhere online or by phone. You can also transfer money in and out of your savings account at any time. However, you may only make up to six withdrawals or transfers out of your High-Yield Savings account during a monthly statement cycle.
- Early Withdrawal Penalties. Withdrawal penalties are important, but complicated. For example, if you open an account and one month later need to withdraw the entire amount, you would in fact be charged three or six months’ worth of interest, depending on the CD’s term. In other words, you would lose a portion of your initial investment. For CDs with a term of 12 months or less, you are charged three months of interest if you make a withdrawal less than six months into the term. However, if you withdraw all of your principal balance six months or more before maturity, American Express figures a cost recovery value based on current interest rates, which means you may be charged a penalty that is greater than three months of interest. The penalty is steeper for CDs longer than 12 months – either 6 months interest or the cost recovery value, which may be greater. And generally speaking, partial withdrawals are not allowed – if you attempt one, American Express will likely close the account, apply the appropriate penalty, and return your funds to you.
- Convenience. The application process takes only a few minutes as long as you have all of your personal information ready. You can also choose to have your statements sent to you via postal mail or electronically.
- Recurring Deposit Features. You can set up an automatic transfer from your external checking account, or even schedule a direct deposit to your savings account.
- No American Express Card Needed. You don’t need to worry about qualifying for an American Express credit card. A savings account or CD can be opened without one.
- Links to Personal Finance Software. Accounts with American Express National Bank are supported by most personal finance software, including Mint and Quicken.
- FDIC Insurance. All CDs and savings accounts are insured for at least $250,000 by the FDIC. This figure increases with each beneficiary that you add.
- Higher Interest Rates Available. Although the rates offered by American Express are competitive, there may be other options available with higher rates. Keep in mind, however, that some of these accounts may come with minimum deposit requirements.
- Extended Fund Hold Times. Funds from electronic deposits can take as long as six business days after initiation to post, and check deposits can take as long as 11 business days.
- Limited Transfers/Withdrawals. To withdraw money from your savings account, you have to transfer it to your external account and go from there. You can receive a withdrawal by check, but you have to call in to request a withdrawal, after which a check is mailed to you. You are limited to a maximum of six transfers and withdrawals for each billing cycle. This rule applies to almost all online savings accounts.
- Limited Customer Support. Although phone support is available 24/7, there is no email or live chat feature.
- Complicated Early Withdrawal Penalties. If you withdraw funds from your CD account before the maturity date, penalties apply, and understanding what exactly they entail can be confusing.
If your funds are limited but you still want to start saving, an account with American Express National Bank may be right for you. The no fee and no minimum deposit features are great for beginning savers. If you’re shooting for a higher interest rate, there may be other options available, but the key is to take the time and do the research before making your final choice.
What are your thoughts on the savings products from American Express?