How to open a high-yield savings account

Let’s chat about savings accounts. What an exciting topic! I promise it will be worthwhile for you! A high-yield savings account is a great tool to use for short or medium-term savings plans. There are a ton of different accounts out there. How do you know what to look for and how to find one? Let me help you with some info about how to find and open a high-yield savings account. 

Imagine this….

You are saving for your dream vacation, a two-week trip to your dream tropical, mountain, historical, remote, adventurous destination (pick which one fits for you!). A friend tells you to increase your savings faster, you should invest your savings into the stock market. For a couple of months, this seems like a good suggestion, however right before you are going to book this adventure, there is an unexpected economic event and you watch your savings decrease by 50%. Because of this, you are now a year away from having enough money to book your fabulous adventure. The volatility of the stock market can lead to fast growth, but can also lead to large drops. The stock market plays an important role in your long-term savings plan but can wreak havoc on your short-term savings plan. 

A high-yield savings account can be the solution to your volatility problem in the situation above. It is also a great place to park your F-money fund and other savings accounts. While the growth (interest) of the high-yield account is less than what the stock market can offer, the benefit of the high-yield savings account is the safety of the amount you have invested. A savings account can never lose money. So if you save $1,000 into the account, the only way the balance will decrease is if you withdraw money from the account. 

This safety makes it perfect for your short and medium-term savings plans like vacation savings accounts, or new car purchase savings accounts. Also, when savings are important enough that you are not willing to risk your investment like in an emergency fund. If your emergency fund suddenly drops in value, right before you suddenly lose your job, you would be panicking! As a part of your “sleep at night” plan, you want your emergency fund to be reliable and held in a non-volatile account. 

So, now that you are convinced of the value of the high-yield savings account, how do you find and open one? 

Interest rates change frequently. Banks are constantly competing with teaser rates to attract savers to move their money to them. Generally, a high-yield account pays anywhere from 10 to 25 times the interest rate of a basic savings account (like you would find at your local bank).  

Where I start is with a website called Bankrate. They do a great job monitoring interest rate changes and publishing a compilation of the most up-to-date rates.  Review this list and just see what is considered a “high” yield rate currently. 

The top banks on this list change frequently with those teaser rates I mentioned above. Some people want to always chase those top-paying banks and are comfortable moving their money around frequently to capture the highest rates possible. Other people would rather pick one of the average top-paying banks, but are less concerned if their interest rates are a fraction of a percentage point lower than you can get at another bank. 

Some banks to consider that are always near the top (consistently) of the interest rates:

• Ally Bank
• Capital One 360
• Discover Bank 
• Synchrony
• Marcus by Goldman Sachs

All of these accounts I listed above are well-known, reputable banks to have your money held at. Take some time to research the ones I listed above and the banks with the top interest rates shown on Bankrate.

You will want to look for:

1. Interest rate
2. Insured through FDIC (for banks) or NCUA (for Credit Unions)
3. Online reviews to ensure the bank is real and reputable
4. Terms or conditions of the rate that you have to follow. Some banks will require a certain balance, or direct deposit amount in order to earn the highest rate. 

Most of these banks are online-only, which I know many people prefer these days. If you are more comfortable with a local bank or credit union, you can ask about their savings accounts. Be warned, that often local bank savings accounts are significantly lower than online high-yield savings accounts. So you may be giving up some earnings in exchange for having a local bank. 

I personally have used Ally Bank and Capital One 360. One of my favorite features of these two banks is that I can have multiple savings accounts, all earning the same high-interest rate, and I can name each account with a custom name. For me, it is more motivating to see that I have a vacation fund, new car fund, emergency fund, house improvement fund, than one big account with all of it jumbled together. 

Once you have the account opened, you will want to take the time to set up the ability to automatically transfer funds from your main checking account directly to this high-yield account. Take some time to set up automatic transfers on your payday to start paying yourself first. Most of these accounts will allow 2-3 business day transfers to your checking account allowing you access the funds with ease whenever you may need them. 

A high-yield savings account is an integral piece of your savings plan. Watching your accounts grow and hit your savings targets is one of the best ways to motivate me to save more! It becomes a competition and we all know I love to win! The interest earned each month seems small now, but with the magic of compound interest, it will start to grow and accumulate!

If you have a high-yield savings account, how has it helped you reach your savings goal? If you have any tips to share, we would love to hear them either in the comments below or over on Instagram!