Stephanie Briones

Better High-Yield Savings Accounts

I’ve spent some time this week researching and making a list of the best available rates for online high-yield savings accounts I can find. I’m going to open one this month and thought I’d share my findings with you.

Back in 2007 or 2008, when I was reading a lot of personal finance blogs, (I Will Teach You To Be Rich, Nerd Wallet, The Simple Dollar…) and I opened my first high-yield savings account, Annual percentage yield (APY) rates were somewhere around 4%. It didn’t sound like a lot at the time, but fast-foward to 2016 where the top rates are just over 1% and that 4% APY sounds really nice. That rate is determined by a lot of factors that I won’t go into here, but are explained really well in “Why Are Savings Account Rates So Low?” from The Simple Dollar in 2014.

Why bother?

Rates are lower now than they’ve been in a while, but that doesn’t mean it’s not worth considering opening a high-yield savings account now. The 1% you’d get back in interest now is so much better than the 0.01% you’d get, or are getting, from traditional savings accounts.

For example, with a traditional savings account at 0.01% interest, an initial deposit of $1,000, and monthly recurring deposits of $500—after 1 year you will have a balance of $7,000.38, (you’d earn 38 cents for the entire year, and after 5 years just $7.88).

If we take that same savings plan, but instead deposit that money into a high-yield savings account at 1% APY, your balance would be $7,037.62 after 1 year, (earning $37.62 in the first year, and after 5 years you’d have a balance of $31,800.77 earning you a free $800.77).

What you’ll get out of opening a high-yield savings account really depends on a few important things:

1. Which account you choose

It’s really important when choosing your savings account that you make sure you know whether or not there are fees, and if there are, what they’re for. Really you want to avoid opening an account with a bank that charges you to maintain the account, or expect a certain deposit every month. But you might find an account you like that has a 1.05% APY, and is free if you contribute $100 per month. That’s a pretty good rate, and a pretty reasonable minimum, just make sure it makes sense for you. If for one month, you aren’t able to transfer the $100 minimum, then you could be switched to 0% APY for that month that you missed.

The idea is to get every bit of interest as possible, so just make sure you can meet the monthly requirements if there are some. Try to go for no fees, no minimum monthly deposit or balance, and high APY, (which is really anything more than 1% currently).

2. How much and how regularly you contribute

When you find a good high-yield account, set up direct deposit or automatic transfers of some kind if you can. The thing about these accounts is that you still have to treat them like you would a normal savings account. Though the interest is a little higher, the only way you’ll really benefit is if you make contributions, and do it monthly, (more if you can). Try not to use the money unless you absolutely must. It’ll make all the difference if you’re only adding to it every month and not taking anything away.

3. How much time you give it

It’s going to take a lot of time to really see the interest rate amount to something substantial. That’s why you should stop what you’re doing and open an account now. I’ve gathered up some of the highest rates from banks that are currently available. Take a look at each one and see if any of them sound particularly good to you. If not, take a look at Bankrate and see if there’s something that suits you more.

My Current Top 3 Savings Accounts

Play around with this calculator to explore the differences in percentage rates, starting deposits, and monthly contributions.

Good luck with your savings goals this year!