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A high yield savings account is an online account that offers a higher interest rate than traditional banks/savings accounts.

These accounts are exclusively online, therefore, they can offer higher rates because they don’t have physical banks/branches to maintain or have to pay employees.

If you have any sort of savings (emergency fund, sinking funds, down payment, etc.) then you should open a high yield savings account.

Why? Let’ get into that:

You earn more money

The APY offered by traditional banks (Bank of America, Chase, Wells Fargo, etc.) is usually about 0.01-0.05%. This means you’ll only earn pennies in those accounts.

On the other hand, a high yield savings account offers an APY that is 20-25+ times higher.

I will say that right now (December 2020), high yield savings are not as high as they used to be.

When I first opened my account with Marcus by Goldman Sachs, I was earning 2.75%. Now, most online savings are offering about 0.5%.

However, wouldn’t you rather earn 0.5% than 0.01%???

If you have cash of any kind that is not being invested, then it should be earning something.

Below is an example demonstrating the difference this can make:

You can organize your money

I keep all of my sinking funds in my HYS account…I have eight.

I have 8 separate accounts, each with their own account number and name, and monthly deposit. However, they all earn the same interest rate!

If I didn’t have my HYS, I would have a lump of cash in my traditional savings and I would have to keep up with the amount saved for each sinking fund manually.

I love having the ability to name and separate my money.

Makes spending your savings more difficult

For those of you that feel tempted to spend the money in your account, a HYS creates a barrier.

Your money is safe and available, however, you won’t see it in your most used checking/savings account.

Plus, if you do want to transfer money from your HYS to your checking, it takes 2-3 days. This gives you time to think about a purchase before going through with it.

Your money is safe and available, but there are a couple of steps involved to get it again which can help a lot of people!

What to look for in a High Yield Savings Account

There are a lot of online banks out there, here’s what you should look for:

FDIC Insured

Most online banks are FDIC insured up to a certain amount. This is important to protect your money.

No minimum deposits required or fees

Some HYS accounts require a minimum deposit to open an account which is fine if you’re able to reach that. However, I would avoid any accounts that require you to maintain a certain balance and/or monthly deposit.

Also, if it has any fees I would steer clear.

The rate

Rates offered by different accounts are usually around the same, but just because one is higher does not necessarily mean it is better.

Some banks even offer promos to earn bonuses.

App/website

Be sure the website and app for the bank is user-friendly. You’ll still want to access your account on a regular basis.

Recommendations

Below are the HYS accounts that I would go with.

Of course, please do your own research!

Marcus by Goldman Sachs – 0.50%

Ally Bank – 0.50%

CIT Bank – 0.50%

Citibank – 0.50%

Synchrony Bank – 0.60%

Discover – 0.50%

Barclays – 0.45%

Something to note

A high yield savings account is NOT an investment. You will not lose money in these accounts.

However, the rates earned are variable so the interest earned my decrease or increase at any time.

Do you have a High Yield Savings account? If not, will you open one??