Do you know what the interest rate on your savings account is off the top of your head?
If you’re like most people, probably not. A savings account is something that you need in order to build an emergency fund or save money for the future, which means you likely opened one at the same bank as your checking account for ease and convenience.
Now, back to that interest rate. The average savings account rate per the Federal Reserve is 0.07% as of February 2018; if you have a balance of $5,000, you’re getting $3.50 in one year with interest compounded monthly. Better than nothing, but you’re barely doing better than you would if your money was stuffed in your mattress. Now, imagine those funds in a high-yield savings account with a rate of 1.5%, and you would have over $75 in that same year at the same terms.
Luckily, with the growth of online banking, more and more institutions are offering access to a high-interest savings account that doesn’t require a massive minimum balance. That means you keep your money safe, but you also put it to work for you. Not to mention, the more your balance grows, the more interest you’ll get.
Leverage higher interest rates to earn more while you save more. Before you sign up for an account, these are some of the things you should prepare and look for.
Interest Rates and Online Banks
If the national average interest rate for savings is 0.07%, that means that there are many banks out there on the lower end of the scale. In fact, most of the big banks have some of the lowest interest rates on their standard savings accounts (as of February 2018):
Bank of America offers 0.03% on balances below $20,000, and only up to 0.06% after that
Wells Fargo offers between 0.01-0.03% on accounts below $25,000
Chase offers a rate of 0.01% unless you open a specific Checking account
If you want to find a high-yield savings account, look for online banks. These institutions can pass on savings to you because they don’t have brick-and-mortar branches, which typically come in the form of much more favorable rates (as of February 2018):
Ally offers a savings account with a 1.45% APY
Marcus by Goldman Sachs offers a 1.5% APY
Barclays offers a 1.5% APY
Synchrony offers the highest APY, at 1.55%
Clearly, to access a high-interest savings account that is true to its name, your best bet is to look for the right online institution.
Fees and Balances
Another upside to having your high-interest savings account with an online bank is that they typically do not have monthly fees or account minimums like traditional banks do, nor do they usually have a minimum balance requirement to open the account. That means you can start saving with any amount and still access those high rates.
It’s one thing to make a deposit at your local bank branch, but how do you deposit checks with an online bank? It used to be that you’d have to mail your checks in and wait for processing, but with new technology, many online banks now offer a form of mobile deposit, whether this is done through a phone app or by scanning the check to a computer. If you often need to deposit cash, this can get difficult, but you can always transfer funds to savings from a checking account at another bank.
But what if you need to access your money? The Federal Reserve’s Regulation D requirements state that you cannot make more than six withdrawals from a savings account a month, or you may be responsible for an additional fee, usually around $10. However, this limit does not apply to ATM usage, so you will have access to your money whenever you need it – something that gets harder with other savings vehicles, like Certificates of Deposit (CDs).
What High-Yield Savings Accounts Are Great For
A savings account that earns you interest can help you reach your financial goals faster while saving more money in the long run.
An emergency fund: It’s recommended that you have at least three months of expenses saved for in the case of an emergency, and because you don’t need this money all the time – but you do need easy access when the time comes – it can keep earning while in a high-yield account.
Sticking with a budget: You’re limited to transactions on a high-interest account, so you won’t be able to spend like you can with a checking account and debit card. If you’re focused on saving money, you’ll earn more interest, and your money will be safely out of the way.
Saving for a major purchase: If you have a big-ticket event or purchase that you’re saving for, putting the money in a high-yield account means you’ll have accumulated interest to keep your savings activity going even after you’ve paid your bill.
Saving money needs to be a commitment year-round. If you’re ready to take your saving to the next level, it’s time to get some helpful tips for ongoing success. Sign up for our newsletter now!