It’s the new year, and chances are you feel invigorated to make some good financial moves. Your goals might include saving more for retirement, paying down (or off) your student loan debt, or finally tackling a will. Perhaps you should consider adding opening a high-yield savings account to that list because of its power to help you grow your savings.
In a recent survey by Marcus by Goldman Sachs®, 60 percent of Americans with a savings account didn’t know the interest rate on the account, and more than half didn’t even shop around to find the best interest rate. Simply put, a higher interest rate on your savings account means more money in your pocket to knock out all those goals you have.
High-yield savings vs. bank savings
When interest rates are on the rise, it’s an opportunity to rethink your savings account situation and earn more on the cash you’re saving. The Federal Reserve made four quarter-point interest rate hikes in 2018, more than we’ve had in ten years. Why does this matter to you? While interest rate hikes mean higher interest rates for variable loans like credit cards, they also mean good news for your savings account. When you factor in compounding on your savings, high-yield savings accounts look quite attractive.
High-yield savings accounts are trendy these days, and there’s a good reason why. Consumers are starting to notice that traditional savings accounts aren’t measuring up to their high-yield counterparts. Average bank savings account annual percentage yields (APYs) hovered around 0.08 percent in December 2018. That’s 8/100 of a percent. In comparison, high-yield savings accounts averaged about 2 percent APY for the same period.
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Let’s see what these differences look like in real money. Here’s a simplified example.
Say you have $5,000 in savings and you add $100 every month. After one year, earning 0.08 percent APY, you’ll have $6,204.48.
If you run that same scenario at 2 percent APY, you’ll have $6,313.05.
That’s more than $108 that could be in your pocket if you choose a bank that pays the higher rate. Now imagine how much more you could earn if you have $10,000 in your emergency fund. Or $20,000. Check your potential earnings with an online compound interest calculator.
One way high-yield savings banks can offer these rates is that they typically don’t have a physical location and the associated costs.
High-yield savings account pros and cons
Let’s run over some pros and cons.
Pros:
- High-yield savings accounts tend to offer higher APYs than most traditional bank savings accounts
- Most high-yield savings accounts have no monthly fees and low minimum balance requirements
- You can transfer money between your high-yield account and your other accounts
- Many high-yield savings accounts have mobile apps making it easy to manage your money
- They typically are FDIC-insured just like your brick-and-mortar bank account, up to the maximum allowed by law
Cons:
- Most high-yield savings account banks don’t have a physical bank location – they are online only
- Not all online banks offer ATM networks
- There may be a slight lag when you transfer funds from one bank to another, typically 24-48 hours
Overall, high-yield savings accounts can be a great option to maximize your savings at higher interest rates that are currently available. Since your savings are meant to stay liquid and easily accessible, high-yield savings accounts can offer you the best of both worlds – higher interest rates (which means more money growing in your account) while keeping your savings safe and accessible.
Where to find high-yield savings accounts
You have options when it comes to finding high-yield savings accounts. Shop around and compare to find a bank and account that work for your goals and lifestyle.
Each company has a slightly different twist, but they all feature higher interest rates than you’d earn at your traditional brick and mortar bank along with FDIC protection.
All APY information shown is as of January 3, 2019. APY/Interest rates can change at any time. Please refer to each bank or company’s respective website for detailed information and for its current rate.
Marcus by Goldman Sachs®
Marcus High-Yield Online Savings
Interest rate: 2.25% APY
Minimum balance: $0, but $1 minimum to earn the APY
Monthly fee: $0
ATM network: No, but you can make online transfers to and from other accounts
Ally Bank®
Interest rate: 2.00% APY
Minimum balance: $0, but $1 minimum to earn the APY
Monthly fee: $0
ATM network: No, but you can make online transfers to and from other accounts, and echeck deposits
Synchrony® Bank
Interest rate: 2.2% APY
Minimum balance: $0
Monthly fee: $0
ATM network: Yes, they offer a wide network and ATM fee reimbursement
American Express®
Personal High Yield Savings Account
Interest rate: 2.10% APY
Minimum balance: $0
Monthly fee: $0
ATM network: No, but you can make online transfers to your bank account
Discover® Financial
Interest rate: 2.0% APY
Minimum balance: $0
Monthly fee: $0
ATM network: No, but you can make online transfers to your bank account, and they offer a robust banking mobile app
These are a few well-known high-yield banks, but there are many more to choose from. In light of rising interest rates, banks are increasingly competing for your business. Take your time and shop around. High-yield savings accounts are online-based savings accounts working to help you maximize your potential for earning interest on your savings. Now that’s a smart money move.
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Shannah Compton Game is a CERTIFIED FINANCIAL PLANNER® professional with an MBA and is the host of the award-winning podcast, Millennial Money, where she shares totally relatable and easy to understand financial advice that will actually make you want to talk about money.
Haven Life doesn’t provide legal advice. This discussion is intended as general education only. We encourage you to work with your own personal tax or legal professionals. Opinions expressed by the author are their own and do not necessarily represent the views of Haven Life.
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