How to Choose a High-Interest Savings Account
by Elizabeth Aldrich | Updated Sept. 2, 2021 - First published on Dec. 3, 2018
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Don't lose money on your savings by choosing the wrong savings account. Here's how to choose the best high-yield savings accounts with high interest rates and low fees.Image source: Getty Images.
Whether you're looking to kick-start your savings or earn more on what you've already saved, opening a high-interest savings account is the first step to making the most out of your cash reserves. These accounts get your money working for you with some of the highest yields we've seen, all while keeping your funds completely liquid. Let's look at exactly how you should go about choosing the best high-interest savings account for your needs.
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What is a high-interest savings account?
A high-interest savings account, or high-yield savings account, is a deposit savings account that pays a higher APY, or annual percentage yield, than a typical deposit savings account. While a traditional savings account might offer APYs from 0.01% to 0.03%, the best high-yield savings accounts offer anywhere from 1.80% to 2.15%.
You'd be surprised at the difference 1 or 2 percentage points can make on even a modest savings balance. The table below shows the yield you would get on your savings with a high-yield savings account versus a traditional savings account.
| Balance | APY | Yield after 1 year | Yield after 5 years | Yield after 10 years |
| $5,000 | 0.01% | $5,000.50 | $5,002.50 | $5,005 |
| 1.90% | $5,095.91 | $5,498.28 | $6,046.22 | |
| $10,000 | 0.01% | $10,001 | $10,005 | $10,010.01 |
| 1.90% | $10,191.81 | $10,996.56 | $12,092.44 | |
| $15,000 | 0.01% | $15,001.50 | $15,007.50 | $15,015.01 |
| 1.90% | $15,287.72 | $16,494.84 | $18,138.65 |
Source: Author calculations.
As you can see, switching from a traditional savings account to a high-yield savings account can earn you hundreds just in your first year depending on the size of your balance. Because both are equally liquid and easy to open, there's really no benefit to having a traditional savings account with a low APY over a high-interest savings account. That being said, as I'll explain in the next section, there are some situations in which you might want to consider parking your cash in something other than a savings account.
High-interest savings accounts are best used for money you want to keep saving but might need access to in the near future. These accounts offer a decent return and extreme liquidity, making them great for things like emergency savings funds, saving for an upcoming trip, or saving for a big purchase you might make in the next couple years. If you know you won't need the money you're saving for at least a few years, there are other options that are a little less liquid but offer higher interest rates, such as certificates of deposit.
Keep in mind that while savings accounts are very liquid, Federal Reserve Regulation D does place restrictions on how many withdrawals you can make per month, and taking out or transferring money more than six times per month can result in fees and even account closure. If you need that money regularly, it's better to put it in a checking account.
What to consider when choosing a high-interest savings account
The best high-interest savings account for you will depend a lot on your needs and preferences. However, there are a few things everyone should look for in a high-yield savings account. You should look for an account that...
- Is insured by the FDIC
- Offers high interest rates
- Charges no fees or the fees can be waived easily
- Comes from a bank with good reviews
Apart from the above guidelines, here are some tips for finding high-yield savings accounts that offer you the best value.
Go for online banks -- Because online banks don't have to worry about the costs associated with running brick-and-mortar locations, they tend to offer some of the highest interest rates on savings accounts. Many of these banks have no fees.
Go for local and community banks or credit unions -- Second to online banks, many local banks and, in particular, credit unions offer great interest rates. Credit unions pass off their profits to members in the form of better rates and lower fees.
Watch out for promotional offers -- Some banks offer promotional interest rates on their savings accounts. These accounts give you a higher APY for an introductory period, after which the APY falls to the regular rate. Make sure the regular rate is still competitive.
Pay attention to minimum deposit requirements and monthly service fees -- Many savings accounts require a minimum opening deposit and a minimum balance in order to incur interest. Some also charge monthly services fees. It's usually better to opt for a fee-free account.
Connect it to your checking account -- You want to make it easy for yourself to continue contributing to your savings once you've opened up an account. Connect the account to your checking and set up automatic monthly deposits to make building your savings easy.
These savings accounts are FDIC insured and can earn you 8x your bank
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. The Ascent's picks of the best online savings accounts can earn you more than 8x the national average savings account rate.
Two top online savings account picks
About the Author
Elizabeth is a writer specializing in credit cards, debt repayment, and small business. Her work has also appeared on MSN Money, Yahoo! Finance, and Business Insider.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
