A Comprehensive Guide to High Yield Savings Accounts

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Last updated: 06/29/2020
A Comprehensive Guide to High Yield Savings Accounts

What Are High Yield Savings Accounts?

In laymen terms, a high yield savings account pays a significantly higher interest rate on deposits compared to what you would earn for a conventional savings account. For example, while you might earn a 0.1% interest on a normal savings account, you could earn up to 2.45% Annual Percentage Yield (APY) on a high yield savings account.

Opening a high yield savings account makes the most sense but remember, banks often charge a monthly maintenance fee, in addition to requiring you to maintain a specified minimum balance. However, some banks waive their fees and are more flexible in how much you need in the account.

Unfortunately, the fees charged by the bank can cancel out the interest earned. Therefore, when researching various financial institutions, it’s essential that you understand all the rules. That way, you can earn the most on your savings.
You need to find the best high yield savings account for you. That’s where a company like Swell Investing comes in. They’ll help you find investment accounts that will work best for you.

Why Open a High Yield Savings Account?

Are you ready for some disturbing statistics? According to the experts, roughly 70% of people in the United States have less than $1,000 in savings. Another study showed that among Americans 55 years of age and older, 29% don’t have any money set aside for retirement.

Especially if you fall in one of these two groups, a high yield savings account will help you save faster and catch up. A lot of people think that after the initial deposit, they have to continually add a lot of money to the account for it to pay off. In reality, even putting $100 a month aside will make a difference.

Considering that high yield savings accounts typically have more money in them compared to a standard savings account, you might have concerns over safety. As long as you select an FDIC-insured financial institution, you have nothing to fear. With that, the federal government insures up to $250,000.

Tips for Selecting the Best Bank

If there’s ever a time in your life when you need to make a well-informed decision, it’s when you open a high yield savings account. After all, the purpose of having an account like this is to earn a high rate of interest while paying low to no fees. 
While maintenance fees are the most common, there could be others, including those for returned deposits, overdrafts, wire transfers and so on.

Also, when reviewing your different options, make sure the bank offers at least a 2% APY, or higher if possible. Primarily due to convenience, most people do business with a financial institution that maintains an online presence. Depending on the bank, some also have brick and mortar locations while others only have a physical location but no internet access.

As part of your research, make sure you investigate every option. Usually, the more prominent financial institutions offer the highest rates on high yield savings accounts, but that doesn’t mean you should automatically discount lesser-known banks.

The amount you put into a high yield savings account depends on several factors, including your goals, long-term financial needs and your income. A good rule to follow is that you should maintain a minimum of three to six months of your total monthly income. For example, if you bring home $2,000 each month, at the very least, you should try to keep $6,000 in savings.

Working as a safety net, that money can help you out of all kinds of challenging situations, whether to repair a leaking roof or to pay unexpected medical bills. By increasing your balance in a high yield savings account, you build your reserve relatively fast.

Critical Inquiries

Following are some of the things that you need to understand before choosing a bank for a high yield savings account:

  • Initial deposit – find out what the bank requires for you to open a high yield savings account. For some, it’s an initial deposit as low as $100 whereas, for others, you’d have to open the account with $5,000 or more

  • Interest rate – the amount of interest paid on a high yield savings account varies from one bank to another. Select one with a minimum of a 2% APY. As part of that, determine if the rate is introductory only or if it extends over the life of the account. If introductory, you want to know when it changes and to what rate

  • Minimum balance – for you to earn the highest interest rate, you must maintain an amount determined by the bank

  • Compounding options – interest compounds at different rates, whether daily, monthly, quarterly, semi-annually and annually. You need to know this information as well.

  • Fees – along with any maintenance fees, ask about those for submitting your application and setting up the account. While a lot of banks waive these, some do not.

  • Account requirements – in some cases, a bank may require you to have a checking account before you can open a high yield savings account while other times, it restricts the number of transactions you can make. Also, because the purpose of having a high yield savings account is to grow your money, most banks won’t provide an ATM card as they would with a standard savings account.

  • Deposits – especially if you plan to open a high yield savings account with an online financial institution, you need to understand what methods of deposits the bank permits, whether via mail, bank transfer or wire transfer.

  • Potential earnings – factored into the Annual Percentage Yield or APY are several things, including the compound interest and interest rate. When speaking with a bank representative, learn about the potential earnings with the APY offered.

  • External links – there are financial institutions that even have external links available to your other accounts. The advantage is you can transfer money quickly and easily between them.

  • Fund accessibility – make sure you know all your options for withdrawing money out of the account. Again, depending on the financial institution, this could entail an electronic funds transfer or even writing checks against the account.

Top-Rated Banks for High Yield Savings Accounts

For 2019, the following represent some of the banks that stand out as the best options for a high yield savings account.

  • Alliant Online Savings – 2.10% APY

  • Ally – 2.20% APY

  • American Express – 2.10% APY

  • Bank4 Connect – 2.05% APY

  • Barclays Bank – 2.20% APY

  • CIT Bank – 2.45% APY

  • Citizens Access –2.35% APY

  • Discover Bank – 2.10% APY

  • FNBO Direct – 2.15% APY

  • HSBC – 2.22% APY

  • Marcus by Goldman Sachs – 2.25% APY

  • Popular Direct – 2.36% APY

  • PurePoint Financial – 2.35% APY

  • Synchrony – 2.25% APY

The most obvious benefit of a high yield savings account is that you can earn a higher interest rate than you would with a traditional savings account. For growing your money quickly, this is the way to go.
Finance Guru

Finance Guru