Considerations for choosing a high-yield savings account
Here are a few important things to consider when searching for a high-yield savings account. Also take a look at Bankrate’s expert reviews of popular banks that offer high-interest savings accounts when choosing which account is right for you.
Annual percentage yield (APY)
One of the most important considerations when choosing a high-yield savings account is the APY.
APY incorporates the effect of compounding: the interest earned on your initial deposit in addition to the interest earned on top of other interest earnings. When it comes to APYs, higher is usually better, but it’s important to weigh the APY against the requirements to earn the yield.
You can use Bankrate’s compound interest calculator to calculate your potential earnings on any savings account.
Minimum deposit required
Minimum deposit amounts vary by bank — some require nothing to open an account, while others require $10,000 or more. Decide how much you can realistically invest when comparing high-yield savings products. If you’re trying to hit a particular goal, consider how much you’re willing to save and over what period of time.
Accounts requiring a higher minimum deposit might not offer the best yields, so it pays to check minimum deposit requirements at all institutions you’re considering before opening an account. Online banks, for example, often require no minimum opening deposit or no minimum balance, and some also charge no monthly maintenance fees.
Minimum balance required
Not only do some high-yield savings accounts require a minimum deposit to open an account, they may also have a minimum balance required to earn the APY offered or avoid fees.
What’s important to consider when weighing the minimum balance requirements of various high-interest savings accounts is how often you’ll need to access the money, and whether you’ll be able to maintain the balance to earn the APY.
How often rates change
Banks and credit unions have a tendency to adjust interest rates. Unlike CDs, which lock in a rate for a period of time, savings account yields tend to be variable, which means they could change at any time.
A bank may lower or raise savings account APYs for various reasons. It may raise its rate as part of a promotion to attract more deposits, or it may adjust rates in response to broader economic factors, such as changes to monetary policy by the Federal Reserve.
Since savings rates are usually variable, consider how often a bank offers teaser rates that may fluctuate and determine what your potential earnings could look like after a year.
Withdrawal options
The number of withdrawals that can be made from savings and money market accounts is governed by Regulation D, which limits transactions to six a month. Included are online transfers to different accounts, transfers over the phone, automatic transfers, overdrafts and check or debit transfers. Withdrawals or transfers made at an ATM or in-person at a bank don’t count toward the limit.
Are high-yield savings accounts safe?
Like traditional savings products, safety is a mainstay of high-yield savings accounts.
Insured up to $250,000 at banks by the FDIC, and at credit unions by the National Credit Union Share Insurance Fund (NCUSIF), high-yield savings accounts offer a safe place to stash cash for emergencies, large expenses and short-term savings goals while earning interest.
Check your accounts regularly for any unauthorized withdrawals or transactions and notify the bank immediately of any discrepancies.
Why are most high-yield savings accounts online?
The best high-interest savings accounts are usually found online. The best online banks tend to offer the most competitive yields on their accounts. One reason why these banks can pay more is that they have fewer expenses since they don’t operate branches.
But these online banks also need a way to get your attention. Often, a high yield is the way to do that. Many online banks also don’t charge a monthly service fee for their accounts and some of them don’t have minimum balance or minimum opening deposit requirements either.
Is a high-yield savings account right for you?
Low yields are part of the current savings-rate environment, but some return is better than none, and rates may soon be on the rise. For these reasons, moving money sitting in a noninterest bearing account to a high-yield savings account could be a smart move. Earning a competitive APY will help the account balance grow over time (assuming no withdrawals are made) and help it better keep up with long-term inflation.
How to open a high-yield savings account
Whether it’s building an emergency fund or saving for a vacation or other big expense, a high-interest savings account can help you reach your goals. Opening a high-yield savings account is relatively simple, too. Here’s how:
1. Shop around: High-yield savings accounts are offered by online banks, traditional banks that operate branches and credit unions. Online banks typically offer the highest rates because they don’t have the overhead associated with maintaining branches and can pass the savings, in the form of higher rates, along to customers. Along with APY, compare the fees and services to find the right fit for your finances.
2. Fill out an application: Once you’ve chosen a high-interest savings account, you’ll need to fill out an application, whether online or in person. The bank or credit union will likely ask for personal information, including your driver’s license number, Social Security number, mailing address and date of birth.
3. Fund your account: After the application is approved, it’s time to fund the account, which can be done by linking a checking account to the new savings account and transferring funds. Depending on the bank, the new savings account can also be funded with cash, through a wire transfer or by mailing a check. Some banks also permit mobile deposits.
Deposit enough money to meet the account’s minimum deposit requirement, otherwise you may be assessed a maintenance fee or earn a lower than expected interest rate, until the minimum is met.
What to do if you are unable to open a high-yield savings account
First, ask your bank why you weren’t able to open a high-yield savings account. Depending on the answer, you might want to go to ChexSystems’ website and request a report to see whether your banking history is the reason why.
ChexSystems is a national specialty consumer reporting agency that keeps track of some of your banking history. Your check cashing history, any suspected fraud activity and closed accounts are some of the things that may appear on a ChexSystems report.