High-yield savings accounts in February 2023
Note: Annual percentage yields (APYs) shown are as of Feb. 16, 2023.
High-yield savings accounts are savings accounts that typically offer a higher interest rate than traditional savings accounts. These accounts are typically offered by online banks and financial institutions and are designed to help individuals grow their savings at a faster rate than they would with a standard savings account.
One of the main benefits of high-yield savings accounts is the higher interest rate, which can help savers earn more money on their deposits over time. Another advantage is that many high-yield savings accounts are offered with no monthly maintenance fees or minimum balance requirements, making them a more accessible and affordable option for many individuals.
However, it’s important to note that high-yield savings accounts often come with some restrictions or limitations, such as limits on the number of withdrawals you can make per month or the need to maintain a minimum balance to earn the higher interest rate.
Overall, high-yield savings accounts can be a great option for those looking to save money and earn a competitive interest rate. It’s important to research and compares different options to find the account that best fits your financial goals and needs.
Tips for selecting an online high-yield savings account
A high-yield savings account is a great way to earn a competitive annual percentage yield (APY) on your money, but finding the right account requires some research. Typically, the best high-yield savings accounts are offered online by FDIC-insured banks, as they tend to have higher yields and lower minimum balance requirements. Online banks are also a convenient place to keep your emergency fund.
To decide if a high-yield savings account is right for you, follow these steps:
- Determine your goal for the money you want to save.
- Consider when you plan to use the funds.
- Compare savings accounts at different banks, paying attention to APYs, minimum balance requirements, and monthly service fees. Online banks typically offer the best yields. To aid in your research, check out Fintechaffairs’s bank reviews.
- Ensure that the financial institution is FDIC-insured and that your deposit is within FDIC limits and guidelines.
- Open the savings account and make your initial deposit.
- Regularly check your bank statement to keep track of your APY, as savings account yields are usually variable.
Important information to understand about the high-yield savings account
What is a high-yield savings account?
High-yield savings accounts are a great way to earn a much higher annual percentage yield (APY) compared to traditional savings accounts. With high-yield savings accounts, savers can earn more on their savings while still enjoying the security of a federally insured account. On the other hand, traditional savings accounts offered by brick-and-mortar and larger banks typically yield close to nothing, often around 0.01 percent APY.
These days, most high-yield savings accounts have a variable APY, which means that the yield is subject to change. For consumers looking for a fixed yield, a certificate of deposit may be a good option. And for those seeking both a fixed APY and access to their money without incurring a penalty, a no-penalty CD might be a suitable alternative. Overall, high-yield savings accounts offer a great way to maximize your savings and make your money work harder for you.
How do high-yield savings accounts work?
By opening a high-yield savings account, you can earn a higher yield compared to a typical savings account. The national average savings account APY stands at a mere 0.23 percent, with some large brick-and-mortar banks offering even lower yields.
Once you deposit money into a high-yield savings account, it immediately starts earning interest. The interest is usually credited on a monthly or quarterly basis, which means your account earns compound interest. This is where your savings begin to grow significantly over time. By taking advantage of compound interest with a high-yield savings account, you can maximize the growth of your savings and reach your financial goals faster.
Factors to consider when choosing a high-yield savings account
When searching for a high-yield savings account, it’s crucial to take certain factors into consideration. Fintechaffairs’s expert reviews of popular banks that offer high-interest savings accounts can also be helpful in choosing the right account for you.
Annual percentage yield (APY)
When selecting a high-yield savings account, the annual percentage yield (APY) is one of the most critical factors to consider. APY is calculated by factoring in the impact of compounding interest, which includes interest earned on your initial deposit as well as interest earned on top of other interest earnings. While a higher APY is generally desirable, it’s essential to consider the requirements for earning the yield before making a decision.
Minimum deposit required
Minimum deposit requirements for high-yield savings accounts can vary widely depending on the bank. Some banks require no initial deposit to open an account, while others mandate a minimum deposit of $10,000 or more. When selecting a high-yield savings product, it’s crucial to determine how much you can realistically afford to invest. If you have a particular savings goal in mind, consider the amount you’re willing to save and the time period in which you plan to accomplish it.
High-yield savings accounts with higher minimum deposit requirements may not offer the best yields, so it’s critical to review the minimum deposit requirements at all banks you’re considering before opening an account. Many online banks, for instance, require no minimum opening deposit or minimum balance and may not have any monthly maintenance fees as well.
Minimum balance required
In addition to minimum deposit requirements, high-yield savings accounts may also have minimum balance requirements to earn the advertised APY or to avoid fees. When evaluating different high-interest savings accounts, it’s important to consider how frequently you’ll need to access your funds and whether you can maintain the required balance to earn the stated APY.
Monthly maintenance fees
Monthly service fees are a key factor to consider when evaluating savings accounts. These fees are typically charged by banks if your balance falls below a certain threshold or average daily balance during a statement cycle.
What is the frequency of savings rate changes?
Banks and credit unions that are competing in the market often adjust their interest rates in response to the Federal Reserve’s rate decisions. Unlike certificates of deposit (CDs), which have a fixed rate for a specified period, high-yield savings account rates are typically variable and subject to change at any time.
Banks may increase or decrease savings account APYs for a variety of reasons. They may increase rates as part of a promotional campaign to draw more deposits, or they may alter rates in response to broader economic factors, such as adjustments to the monetary policy made by the Federal Reserve.
Can high-yield savings accounts offered by online banks be considered safe and secure?
High-yield savings accounts provide a secure option to save money for short-term goals and emergencies while earning interest. The Federal Deposit Insurance Corporation (FDIC) insures up to $250,000 per depositor, per FDIC-insured bank, per ownership category.
This means that in the event of a bank failure, customers’ funds are protected within the specified limits and guidelines. To verify that a bank is FDIC-insured, you can use the FDIC’s BankFind Suite. Similarly, if you have an account at a credit union, make sure that the institution is insured by the National Credit Union Administration (NCUA).
Which individuals would benefit from opening an online high-yield savings account?
High-yield savings accounts that come with no minimum opening deposit or balance requirement, as well as no monthly service fees, can be a good option for almost anyone. Different individuals will have varying financial goals and be in different stages of their financial lives.
Here are a few examples:
A high-yield savings account can be an excellent way to let your down payment money grow until you are ready to buy a house, condo, or apartment. Unlike most CDs, you can add to your account balance anytime you want.
Soon-to-be married couples
By opening a high-yield savings account, you can earn a competitive interest rate while saving money for your wedding. You can continue to deposit funds into this account until your wedding day arrives, allowing you to track your progress toward your savings goals more easily. Having a separate account designated for your wedding savings can help ensure that you have enough funds to cover your expenses when the time comes.
Jetsetters and road-trippers
To achieve your savings goals for your next vacation, consider opening a savings account that can earn you compound interest. Determine how much you’ll need for the trip, and then use the account to track your progress.
To make saving even easier, set up a split deposit from your direct deposit, or an automatic transfer from your checking or other savings account. However, be mindful of maintaining sufficient funds in your other account to avoid overdraft fees.
Pros and Cons of online high-yield savings accounts
Savings accounts can be a good fit for many financial goals. Here are the pros and cons to help you decide if a savings account is right for you:
- Online high-yield savings accounts typically offer higher Annual Percentage Yield (APY) than traditional savings accounts.
- Many high-yield savings accounts come with digital tools that enable you to manage your savings using your smartphone or tablet.
- Most banks and credit unions offer high-yield savings accounts that are federally insured, so your money is protected.
- High-yield savings accounts are more flexible than a certificate of deposit (CD), as you can access your funds with ease.
- Interest rates on high-yield savings accounts can be variable and may decrease.
- Some banks limit withdrawals/transfers to six per month.
- You typically cannot write checks from a savings account.
- Investing your money could provide higher returns.
- Some online banks don’t offer branch or ATM access.
How to open a high-yield savings account
If you’re looking to achieve your savings goals, a high-interest savings account could be the way to go. Here’s a simple guide on how to open one:
- Comparison shop. High-yield savings accounts can be found at online banks, traditional banks with branches, and credit unions. Online banks typically offer higher rates due to lower overhead costs. Compare the APY, fees, and services to find the best fit for you.
- Fill out an application. Once you have found a high-interest savings account, you’ll need to fill out an application, either online or in-person. Be prepared to provide personal information, such as your driver’s license number, Social Security number, mailing address, and date of birth. If you’re applying online, you may need to scan a copy of your government-issued photo ID.
- Fund your account. After your application is approved, it’s time to fund your account. This can be done by linking a checking account to the new savings account and transferring funds. Depending on the bank, you may also be able to fund your account with cash, wire transfer, or by mailing a check. Many banks also allow mobile deposits.
Be sure to deposit enough money to meet the account’s minimum deposit requirement to avoid maintenance fees and lower interest rates.
Steps to take when you can’t open a high-yield savings account
In the event that you encounter difficulties opening a high-yield savings account, it may be helpful to inquire with the bank about the reasons why. Depending on the explanation given, it might be advisable to obtain a report from ChexSystems to determine if your banking history is a factor.
ChexSystems is a specialized consumer reporting agency that maintains records on some aspects of your banking history, such as check cashing history, suspected fraudulent activity, and closed accounts.
High-yield savings account vs. traditional savings account
High-yield savings accounts and traditional savings accounts share similarities but also have some differences. High-yield accounts are commonly found online, whereas traditional savings accounts, including passbook and statement savings accounts, may only be available for opening and managing at a physical bank branch.
Additionally, high-yield savings accounts generally earn much higher interest rates than traditional savings accounts, although they may require a larger initial deposit and minimum monthly balance. Both types of accounts may be subject to monthly fees depending on the institution, but some banks offer high-yield and traditional savings accounts that have no fees.
High-yield savings account vs. certificate of deposit (CD)
A high-yield savings account is designed for funds that you may require at any time. In addition to the advantage of being able to make withdrawals as needed (although there may be limits per statement cycle), you can also make deposits to the account at any time.
On the other hand, with a certificate of deposit (CD), you could face an early withdrawal penalty if you withdraw funds before the end of the CD’s term. Additionally, regular CDs usually do not allow you to make deposits during the CD’s term.
High-yield savings account vs. money market account
High-yield savings accounts typically do not allow for check writing, whereas many money market accounts do. However, both high-yield savings accounts and money market accounts are often available at banks that are insured by the FDIC. While savings accounts are more commonly offered than money market accounts, many banks provide both types of accounts.
High-yield savings account vs. checking account
Compared to a checking account, a high-yield savings account typically offers a higher yield. However, savings accounts may impose restrictions on the number of withdrawals or transfers allowed per statement cycle. Checking accounts, on the other hand, are primarily intended for handling transactions such as bill payments or other expenses and typically do not have monthly transaction limits.
The primary focus of our editorial team at Fintechaffairs is to identify the highest APYs available and to use the minimum balance to open a CD as a deciding factor in the event of a tie. We have conducted thorough reviews of almost all the banks and credit unions that we track, selecting them for their competitive APYs and larger deposit or asset volumes.
In addition, we consider factors such as appearing frequently in online searches and offering accounts that are widely available across the country. All the banks featured on our platform are insured by the Federal Deposit Insurance Corp. (FDIC), and all the credit unions are insured by the National Credit Union Share Insurance Fund (NCUSIF), a division of the National Credit Union Administration (NCUA).