How to Choose a High Yield Savings Account
I’m a big fan and user of online savings accounts (also called high-yield savings accounts or HYSAs) as part of my overall financial strategy.
Here’s why I love them.
First, they are out of sight, out of mind.
Online savings accounts are separate from our checking accounts. Meaning, when we log in to our checking account, we don’t see this account or the money inside it.
This makes the money feel a lot less available, even though we could transfer it over in a few days notice. A lot of the banks that offer online savings accounts also offer great checking account options. I recommend keeping your checking account completely separate.
They earn interest!
Interest rates have been on the rise. Right now you can earn around 3.5-5.0% in your online savings account which is probably over 100x more than what we would earn with a brick and mortar bank.
If we keep a $15,000 rainy day fund in our HYSA at 4%, we’d earn $600 per year for doing nothing.
They are free.
These accounts should cost no money to set up and there are no monthly fees or other hidden fees.
You can set up useful automations.
You can open multiple accounts (or sub-account / buckets) and name them different things at no additional charge. The names give each dollar a job. For example, $5,000 in my travel account, $15,000 in my rainy-day account and $5,000 for summer camp.
Otherwise, we have one blob of savings that we have to account for in our heads. This gets messy and we might allocate the same dollar multiple times. I’ve done it!
You can open accounts for each of your goals and fund them with automatic transfers.
What to look for.
Once we decide whether or not we want to incorporate online savings accounts into our financial picture, it’s time to choose an account. Here’s what to look for:
It’s free.
There are plenty of free options to choose from.
You earn some good interest.
Around 3.5-5.0% at the time I’m writing this but look around at different rates.
It’s FDIC insured.
Most are but this protects you for up to $250,000 if something were to happen to the bank.
Reviews.
We want these to be easy to use. By reading reviews we can hear about others’ experiences with the companies.
Other things to ask yourself.
Do you prefer to use an app or typically use your computer?
If you like to use your phone for banking, read some reviews about the apps. The quality varies.
Do you already have an account with someone who has a good high yield savings option?
If the company you use to invest, for example, has a great online savings account, you might decide to have them in one place (and under one login / password!).
That being said, most people have the best success with online savings accounts that are completely separate from where they have their checking accounts. Even though a lot of these places have checking accounts available, I’d usually recommend keeping them separate.
How often do you plan to transfer out?
With online savings accounts you can’t transfer money out more than six times per month. In some cases you may be charged a fee for going over the limit or they may just notify you that they are going to close your account.
How do you prefer to interact with the bank?
Most banks offer phone support and others offer chat support. Hours vary. Take your preferences and schedule into account.
These are my favorite online savings accounts right now.