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Friday, December 13, 2019
It doesn’t matter if you’re working class or filthy rich — everyone needs an emergency fund. And there’s no better place to park the money you’re saving than in a high-interest savings account.
High-yield savings accounts are used for emergency funds and storing savings for future events. They pay a yield that’s higher than average, allowing savers to reach their financial goals faster. CDs are deposit accounts that tend to pay higher yields than traditional savings and money market accounts.
The average savings account pays 0.10 percent APY. Many of the country’s biggest banks pay less than that.
If you’re sick of earning less than 1 percent APY, consider making a change. Compare rates among today’s best high-interest savings accounts. They have the highest yields available to savers nationwide.
High-yield savings accounts are a type of deposit account that can be found at both online and brick-and-mortar institutions. These financial tools typically pay a higher interest rate than traditional savings accounts and almost always offer better returns than checking accounts.
But it’s not just higher interest rates that set high-yield savings accounts apart from other savings products.
Here are just a couple of the biggest financial benefits of high-yield savings accounts:
Like traditional savings products, safety is a mainstay of high-yield savings accounts.
Insured up to $250,000 at banks by the Federal Deposit Insurance Corp., and at credit unions by the National Credit Union Association (per depositor, per institution, per ownership category), high-yield savings accounts offer a safe place to stash cash while earning interest.
That makes high-yield savings accounts a good place to keep funds for emergencies, large expenses and short-term savings goals.
Keep in mind that online banks typically offer higher rates and better benefits on these types of accounts than national brick-and-mortar banks. Online banks don’t have the costs associated with brick-and-mortar institutions and can pass those savings on to customers in the form of higher yields.
Here are four important things to consider when searching for a high-yield savings account.
One of the most important considerations when choosing a high-yield savings account is the annual percentage yield.
Annual percentage yield, or APY, tells you how much you’ll earn with compound interest over the course of a year. It’s the interest earned on your initial deposit in addition to the interest earned on top of other interest earnings.
And in the case of APYs, higher is always better. But it’s important to weigh the APY against the requirements to earn the yield.
For example, Bank X pays a slightly higher APY than Bank Y, but Bank X has a higher minimum deposit requirement and minimum balance requirement than Bank Y. If you can meet the requirements of Bank X, it’s worth consideration. If not, Bank Y might be the better choice.
Another component of the account’s APY is its compounding method. You can find accounts that compound on a daily, weekly, monthly, quarterly or even yearly basis.
It’s ideal to find a high-yield savings account that compounds daily. The more frequently your interest compounds, the faster your savings will grow.
You can use Bankrate’s compound interest calculator to calculate your potential earnings on any savings account.
Besides the annual percentage yield, you’ll also need to consider a bank or credit union’s tendency to adjust interest rates. Unlike CDs, which lock in a rate for a period of time, savings account yields tend to be variable. That means they could change over the course of two or three weeks.
A bank may lower or raise an APY for various reasons. Your savings account rate could increase if a bank is trying to attract more deposits by offering a temporary promotional rate. Or broader economic factors, like the three recent Federal Reserve interest rate cuts could lead a bank or credit union to lower their rates as borrowing money becomes cheaper. Savers in fact have seen their yields slide in recent weeks as the Fed has lowered its benchmark rate.
“Savings rates have fallen, but not to the same extent as the Federal Reserve interest rate cuts,” says Greg McBride, CFA, Bankrate’s chief financial analyst. “While the Fed has cut rates three times for a total of 75 basis points, the top-yielding online savings accounts are down about 50 basis points.”
Beware the bait and switch. Consider how often a bank offers teaser rates that may fluctuate and determine what your potential earnings could look like after a year. For more peace of mind, consider a CD or look for savings accounts with a rate guarantee for six months to one year.
The minimum deposit required, sometimes called an opening deposit, can be a big factor when deciding on which high-yield savings account to choose.
Minimum deposit amounts vary widely across banks — some require nothing to open an account, while some require a deposit of $10,000 or more.
Consider your budget and decide how much you can realistically invest when comparing high-yield savings products. If you’re trying to hit a particular goal, ask yourself how much you’re willing to save and over what period of time.
The more you invest and the better the interest rate, the faster compound interest will help you hit your goal. But if you can’t swing a particular minimum amount, it’s best to go with an account that requires less of an upfront financial commitment.
Accounts requiring a higher minimum deposit may offer a higher yield, but that’s not always the case. Make sure to check minimum deposit requirements at all institutions you’re considering before opening an account. Many of the best high-yield savings accounts require a minimum opening deposit of $100 or less.
Not only do some high-yield savings accounts require a minimum deposit to open an account, they may also require a minimum balance to earn the annual percentage yield or avoid fees.
One common fee banks charge for not maintaining a minimum balance in the account is called a “monthly maintenance fee.” But often, as long as you maintain the minimum balance, the bank will waive the fee.
Like minimum deposit amounts, minimum balance requirements can range from $0 to well over $10,000.
What’s important to consider when weighing the minimum balance requirements of various high-yield savings accounts is how often you’ll need to access the money, and whether you’ll be able to maintain the balance in order to earn the annual percentage yield.
Before opening any type of savings account, it’s important to consider how often you’ll need to access the money.
Because of Regulation D, known for short as “Reg D,” savers can make only six transactions per month from savings accounts. That includes online transfers to different accounts, transfers over the phone, automatic transfers, overdrafts and check or debit transfers. These rules apply to money market accounts as well.
However, banks all have their own options and rules for withdrawing and transferring funds. So, it’s crucial to dive into the details of an account before signing up.
Some banks offer tiered interest rates. To earn the highest yield, you may have to keep a large amount of money in your account. For example, Customers Bank offers a high yield, but you have to deposit at least $25,000 to take advantage of it.
Some savings accounts — like the ones available at TAB Bank and Vio Bank — offer a competitive yield without requiring a high minimum deposit. Those kinds of accounts are ideal for savers in the process of building their emergency fund.
Calculate how much you stand to make with all of these offers using our simple savings calculator. Consider other factors before choosing a new bank, including fees, digital capabilities and branch and ATM access. And take a look at Bankrate’s expert reviews of popular banks with high yield savings accounts.
High-yield savings accounts have a wide range of uses, but one of the best is to save up for big-ticket items. That’s because savings accounts with a decent yield offer accelerated growth of your money.
Here are some of the best uses for a high-yield savings account:
Traditional conforming loans typically require a down payment of at least 5 percent. That moves up to 20 percent to avoid private mortgage insurance.
FHA loans require a down payment of at least 3.5 percent.
Here’s how much you’d need to save for a down payment on a $200,000 home:
Saving that amount of money can take some time. But a high-yield savings account can help you hit your goal faster.
Here’s a general estimate of how long it would take to save up a 20 percent, 5 percent and 3.5 percent down payment on a $200,000 home, assuming you put away $1,000 per month into a high-yield savings account paying a 2 percent APY.
When saving for a child’s education, it’s best to start early and save often. College savings plans like the 529 can be a great solution, mainly because money grows tax-free in a 529. It also isn’t taxed when the money is taken out to pay for college.
But college tuition costs can sneak up fast, and a high-yield savings account can be a solid alternative in last-minute situations when saving is essential.
In order to successfully use a high-yield savings account for college tuition, you’ll need to set a savings goal and calculate the monthly investment needed to hit that goal.
For example, let’s say you need $50,000 for college tuition and your child is in seventh grade. If you open a savings account with 2 percent interest, you’d need to deposit around $639 per month in order to hit your goal by the time they head off to college. That’s with an initial deposit of $1,000.
You can use Bankrate’s savings goal calculator to create a timeline for your savings goals.
Family vacations can be an exciting adventure, but they can also be tough on the wallet. Fortunately, a high-yield savings account can help out.
In order to properly use a high-yield savings account to pack away money for a family getaway, you’ll need to first decide how much you want to spend and when you’d like to go.
Then consider making a budget for travel, lodging, food and miscellaneous items.
How fast could a high-yield savings account help you get to your goal?
If you’re planning to spend $2,000 on a getaway in 12 months, you would need to save around $157 per month in a high-yield savings account paying 2 percent interest. That’s with an initial $100 deposit.
High-yield savings accounts aren’t only for major expenses.
In fact, one of the best purposes a high-yield savings account can serve is as a place for your emergency fund. This is a fund that typically covers three to six months of living expenses in case of things like an unexpected layoff or replacing a failing HVAC system during a hot summer.
High-yield savings accounts can also be useful for expenses with a short timeline, like a wedding. The national average cost of a wedding is $33,931, according to The Knot’s 2018 Real Wedding Study. And that doesn’t include the honeymoon.
A high-yield savings account can help you save for the big day.
If you have a year to save, you’d need to save around $2,718 per month in a high-yield savings account paying 2 percent in order to save $33,931 for the wedding. That’s with an initial deposit of $1,000.
Here are a few other potential uses for high-yield savings accounts:
Paying attention to interest rates is key when you’re comparing savings accounts. But you should also use a calculator to crunch some numbers.
Let’s say you’re deciding between a savings account that pays 2 percent APY and one that pays 2.15 percent APY. If you’re depositing $700, the difference between the amount of interest you’d earn through either account is about a dollar. But if you’re depositing $50,000, you’d earn an extra $76 by picking the account with the higher yield.
If you’re looking for a secure account that pays more interest, take a look at the best high-yield CDs. Like savings accounts, they’re insured by the federal government and offer a guaranteed rate of return.
SFGI Direct is an online division of Summit Community Bank, with 29 banking offices in West Virginia and Virginia. The SFGI Direct Savings account requires a $500 minimum deposit to open an account, but if your balance falls below this amount, you’ll still earn the top rate as long as you maintain at least a dollar in the account.
There are no monthly service charges. Customers can open an account online and manage it anytime, 24/7. Paper checks and paper statements are not available.
Customers Bank is based in Pennsylvania. In addition to individuals and families, the bank serves small- and medium-sized businesses.
The bank’s High Yield Savings Account offers a competitive interest rate that’s guaranteed through June 2020. There are no minimum balance fees, but you’ll have to deposit at least $25,000.
Prime Alliance Bank is based in Woods Cross, Utah. In 2004, it was established to support consumers and local business owners.
Though the bank offers a competitive yield, you’ll need at least $10,000 to earn the highest interest rate. Otherwise, you’ll have to settle for a lower yield (1.86 percent APY).
BrioDirect is an online-only bank. It’s a new division of Sterling National Bank, a subsidiary of Sterling Bancorp.
The bank’s high-yield savings account requires a low minimum deposit. The yield is competitive and there are no monthly fees.
TAB Bank, which offers financial services to businesses in the transportation industry, was founded in 1998. Tab Bank, also known as Transportation Alliance Bank, is based in Ogden, Utah.
There are no monthly service or minimum balance fees. Don’t confuse the High Yield Savings account with the Premium Savings account, which pays much less interest (just 0.25 percent annually).
Elements Financial is a credit union based in Indiana. Anyone nationwide can join by becoming a member of Tru Direction and paying a $5 membership fee.
The credit union offers several different types of savings accounts. Its Helium Savings account pays up to 2.10 percent APY, but only if you’re a new account holder. The APY is also a temporary, promotional rate. After a year, expect the yield to reset to a lower interest rate.
Vio Bank is a new online division of MidFirst Bank, a financial institution based in Oklahoma City with more than 600,000 customers.
The bank offers a high yield online savings account that pays more than most banks and doesn’t require account holders to pay any monthly fees. Interest is compounded daily, allowing balances to grow as quickly as possible. The minimum deposit ($100) is also relatively low.
Comenity Direct is an online-only bank that offers high-yield savings products and CDs. Its a division of Comenity Capital Bank, which is part of a brand that has been around for 30 years.
The bank’s savings account pays a high yield on balances up to $10 million. The minimum deposit is low and interest is accrued and compounded daily. There are no monthly fees and deposits can be made through ACH transfer and mobile check deposit.
First Foundation Bank has today’s top nationally available savings account for accounts with minimum deposits of $25,000 or less. New money is required for the online account. The bank is based in Irvine, California and has a total of 20 locations.
Earning the highest yield for the bank’s online savings account isn’t too difficult. Those who maintain a balance that’s less than $1,000 will only earn 1 percent APY. There are no monthly service fees, but customers should watch out for other charges like the $20 fee for excess withdrawals.
CIBC U.S. is headquartered in Chicago. It’s a subsidiary of the Canadian Imperial Bank of Commerce, which is based in Toronto.
The bank offers its Agility Online Savings Account, which pays a high yield and requires a reasonable minimum deposit of $1,000. The minimum balance to earn the top rate is $0.01. There are no monthly service fees, and customers have access to a mobile app.
If you open the account and close it within 90 days, you’ll get hit with a $25 fee. There’s also a $5 monthly dormant account fee. Overdraft and non-sufficient funds fees may apply to transactions made in person, at an ATM or electronically.
| Bank | Top APY | Top APY vs. national average | Minimum balance |
|---|---|---|---|
| SFGI Direct | 2.07% | 22.7 x higher | $500 |
| Customers Bank | 2.25% | 22.5 x higher | $25,000 |
| Prime Alliance Bank | 1.96% | 22.2 x higher | $10,000 |
| BrioDirect | 2.10% | 22 x higher | $25 |
| TAB Bank | 2.10% | 21 x higher | $1 |
| Elements Financial | 2.10% | 21 x higher | $2,500 |
| Vio Bank | 2.02% | 20.2 x higher | $100 |
| Comenity Direct | 2.00% | 20 x higher | $100 |
| First Foundation Bank | 2.00% | 20 x higher | $1,000 |
| CIBC Bank USA | 1.85% | 18.5 x higher | $1,000 |
Note: If the minimum deposit is higher than the minimum balance needed to earn the top yield, the minimum deposit is listed.
Overall, high-yield savings accounts can be used for a range of purposes. From your emergency fund to saving up for a down payment, high-yield savings accounts can play a major part in your broader financial plan. If you’re looking for an account that can help you save while still offering easy access to your money, a high-yield savings account is worth consideration.
You can use Bankrate’s savings rate table to compare the best savings accounts.
Use this free CD calculator to find out how much interest is earned on a CD.
Use this simple savings calculator to estimate your investment growth over time.