As you work on your savings plan for 2023, we would like for you to consider several things before you park your money. One of the biggest money management tools you can take advantage of is opening a savings account. A savings account allows you to save money over time for financial emergencies like a major illness, losing a job, an unexpected surgery procedure, or when life happens. Just doing this one simple thing can save you from having to borrow money from check cashing or finance companies. These places can suck up your extra money so fast that you will get stuck renewing every payday because you can’t afford to pay off the loan.
Experts recommend having 3-6 months of living expenses in your account. And because you may need to have quick access to the money, a high-yield savings account is the best account to use. The best online savings accounts offer high-interest rates while being a great place to hold your money. They can offer high-interest savings paying many times higher than the national average of 0.33%. My rule of thumb is to research several online and local banks to see who has the highest interest rates on their high-yield savings account. Most credit unions and online banks offer high-yield savings accounts that do not have any fees attached.
The two most important factors when shopping for banks that offer high-yield savings accounts are APY’s (annual percentage yield) and bank fees. High-yield savings accounts offer up to 20X more interest based on the national average annual percentage yield of 0.33% as compared to online banks with interest-bearing savings account annual percentage yield of 0.40% or more. This means that you earn more by letting your savings sit in a high-yield savings account rather than a regular savings account. If you are going to let the bank hold your money, why not make some passive income while you let it sit there?
When researching high-yield savings accounts, there are certain terms you’re likely to come across. Understanding what they mean can help you to find the right savings option.
⦁ Annual percentage yield (APY). The annual percentage yield or APY on a savings account reflects the interest you could earn on your savings over the course of a year when compounding interest is factored into the equation.
⦁ Compounding interest. Compounding interest is interest earned on your previously accrued interest. It’s calculated based on your principal deposits and the interest you earn as you go.
⦁ High yield. High yield means that a savings account offers a higher-than-average interest rate.
⦁ Minimum deposit requirement. A minimum deposit requirement for a high-yield savings account is the amount you’ll need to deposit to open the account. Depending on the bank, this may be as low as $1 or even $0.
⦁ Monthly maintenance fee. A monthly maintenance fee is a fee certain banks charge you to keep your account open. The advantage of opening a high-yield savings account with an online bank is that they don’t usually charge monthly maintenance fees.
⦁ Online bank. Online banks operate on the internet and typically do not have branches. Instead, you access your money via web browsers or mobile banking apps. Some online banks also offer ATM access.
Choosing the best high-yield savings account isn’t always obvious, so comparing accounts will help you find the best option. Here are some factors to consider before opening an account.
⦁ Interest Rate
Perhaps the most important factor when choosing a high-yield account is the interest rate. Earning a higher interest rate will help maximize your savings more quickly.
⦁ Deposit Requirements
Some accounts require a minimum opening deposit for a new account. You may also need to maintain a specific balance to earn interest or avoid monthly fees.
⦁ Account Fees
Fees can cancel out interest earned on your savings. Check the account’s fee schedule to determine if you’ll be charged a monthly service fee or other fees. Some banks will waive fees if you keep a certain amount in your account.
⦁ Compounding Frequency
Interest on a savings account can compound daily, weekly, monthly, quarterly, or annually, depending on the bank. When interest compounds, you earn interest on your interest. Choosing an account that compounds more frequently can help you earn more interest over time.
PVS has done the research and has found these five banks have the highest interest rate to date. Note…interest rates may change from the time this blog post was published. Please visit each listed website below to get their current rates. As always, don’t take our word for it, do your own research and make a conscious decision according to your personal situation.
SOFI – Offers up to 3.75% APY and up to $250 with direct deposit on checking and savings accounts. No monthly fees and no minimum deposit. Click here for more information.
DISCOVER – Offers up to 3.30% APY on their online savings account with no monthly fees and no minimum deposit. Click here for more information.
MARCUS BY GOLDMAN SACHS – Offers up to 3.50% APY with no monthly fees and no minimum deposit. Click here for more information.
AMERICAN EXPRESS HIGH YIELD SAVINGS – Offers up to 3.40% APY with no monthly fees and no minimum deposit. Click here for more information.
CITI ACCELERATE SAVINGS – Offers up to 3.85% APY with no monthly fees and no minimum deposit. Click here for more information.
WEALTHFRONT – Up to 4.05% APY with no monthly fees. Receive a $30 bonus when you open an account. Must fund account with $500 or more. Click here for more information.
LENDING CLUB – Up to 4.00% APY with no monthly fees. Must fund account with $100 or more. Click here for more information.
BMO HARRIS BANK – Up to 4.20% APY with no monthly fees and no minimum deposit. Click here for more information.
VARO BANK – From 3.00% to 5.00% APY on balances up to $5,000 by meeting requirements. No fees or minimum balance is required to open an account. Click here for more information.
If you’ve been struggling with your finances and are looking for a tool to help you manage your money, the Financial Gameplan Workbook is the perfect book for you. Click here to order the ebook or print version.