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.
The average savings account pays 0.09 percent APY, according to Bankrate’s most recent national survey of banks and thrifts. Many of the country’s biggest banks pay far 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.
What is a high-yield savings account?
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:
- Higher APYs: High-yield savings accounts generally offer significantly higher interest rates than traditional savings products. That means you can earn more on your money and meet your savings goals faster.
- No or low fees: High-yield savings accounts tend to come with no monthly fees and low fees for things like having nonsufficient funds. That’s especially so with high-yield savings accounts found at online banks.
In addition, 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, 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 like a vacation.
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.
Best online high-yield savings accounts
- Best interest rate: Northpointe Bank, 2.05% APY
- Runner-up rate: PurePoint Financial, 1.90% APY
- Runner-up rate: Radius Bank, 1.86% APY
- High yield: Salem Five Direct, 1.85% APY
- High yield: Popular Direct, 1.85% APY
- High yield: IncredibleBank, 1.82% APY
- High yield: MutualOne Bank, 1.81% APY
- High yield: DollarSavingsDirect, 1.80% APY
- High yield: Bank 7, 1.80% APY
- Competitive rate: Live Oak Bank, 1.70% APY
What to consider when choosing a high-yield savings account
Here are four important things to consider when searching for a high-yield savings account.
1. Annual percentage yield
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.
2. Minimum deposit required
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.
3. Minimum balance required
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.
4. Withdrawal options
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.
Comparing the best high-interest savings accounts
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, with the High Yield Savings account offered by IncredibleBank, customers with balances up to $24,999.99 earn 1.21 percent APY. To earn the top rate (1.82 percent APY), you have to deposit at least $25,000.
Some savings accounts – like the ones available at Live Oak Bank and MutualOne Bank – offer a high yield without requiring a high minimum deposit. Those kinds of accounts are ideal for savers in the process of building their emergency fund. Similarly, DollarSavingsDirect – which offers one of the best savings account rates – requires only a $1 minimum deposit.
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 assessment of the financial health of banks and credit unions throughout the country.
Best uses for a high-yield savings account
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:
1. Down payment on your first or second home
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:
- 20 percent down: $40,000.
- 5 percent down: $10,000.
- 5 percent down: $7,000.
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.
- 20 percent: Three years.
- 5 percent: Nine months.
- 5 percent: Six months.
2. Last-minute college savings
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 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.
3. Big family vacation
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 high-yield savings account paying 2 percent interest. That’s with an initial $100 deposit.
4. Other savvy uses for a high-yield savings account
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 $33,391, according to The Knot’s 2017 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 $2,673 per month in a high-yield savings account paying 2 percent in order to save $33,391 for the wedding. That’s with an initial deposit of $1,000.
Here are a few other potential uses for high-yield savings accounts:
- Saving to buy a vehicle.
- Saving to buy things like furniture.
- Saving for estimated taxes as a self-employed individual.
Do the math before picking a savings account
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 1.7 percent APY and one that pays 1.85 percent APY. If you’re depositing $700, the difference between the amount of interest you’d earn through either account is less than 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.
Compare: Best high-yield savings accounts
|Bank||APY||Minimum Opening Deposit|
|Salem Five Direct||1.85%||$100|
|Live Oak Bank||1.70%||$0|
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.