Interest rates on savings accounts are still historically low, so it makes sense to shop around for the best savings account rate you can find. You will usually find it in a high-yield savings account. A high-yield savings account is one that provides a higher interest rate than other savings accounts. But not all high-yield savings accounts are created equal, so here’s what you should consider when you’re looking for the best savings account rates.
Steps to Find the Best High-Yield Savings Accounts
Finding the best high-yield savings account will take a bit of research and some reading of the fine print or talking to a financial institution representative. Here are the steps to find the best high-yield savings accounts:
1. Consider the Bank
Not all banks offer high-yield savings accounts, so you might need to look around a little bit. Here are three places to start your search for the best high-yield savings account:
- Your current bank: If you have a checking account or other accounts with a bank already, inquire about opening a high-yield savings accounts. Sometimes a bank will aggregate your account balances to meet minimum balance requirements or interest rates. Plus, it might be easier to have all of your accounts in one place.
- Online banks: Because a virtual bank has lower expenses than its brick-and-mortar counterpart, you will often find a higher interest rate on an online savings account. Goldman Sachs online bank was paying 1.85% APY, and Ally Bank offers 1.80% APY, compared to Bank of America’s highest rate, a five-year CD with 0.75% APY.
- Credit unions: Different from banks, credit unions are owned by the members who have deposit accounts and loans there. They’re not-for-profit institutions and aren’t beholden to shareholders, so credit unions can pay higher interest rates than publicly-held banks. For example, Alliant Credit Union has a high-yield savings account that paid 1.50% APY as of April 16, 2018. Note that you have to be a member of a credit union, and there might be restrictions on membership. Credit union deposits are insured by NCUA up to $250,000.
2. Understand the Terms
Because high-yield savings accounts pay a higher rate of interest than a standard savings account, they sometimes have more restrictive terms and conditions. Make sure you understand any possible fees or requirements before you choose.
Many high-yield savings accounts limit the number of transactions to six in each statement period, thanks to the Federal Reserve Bank’s Regulation D, which imposes a limit of six pre-authorized transactions each month on a savings or money market account at banks. This limitation keeps the bank’s administrative costs down so they can offer a better interest rate. If you have more than six transactions in a cycle, you’ll get hit with a fee for each excess transaction.
Some banks or credit unions require a minimum balance in order to get their best interest rates, although the amount might be nominal. Alliant Credit Union, for example, requires a $100 average daily balance in order to earn interest. The interest rate on your high-yield savings account might change after you open the account, so keep an eye on it.
Make sure that the institution you are considering has deposits insured by the FDIC or NCUA. These organizations provide protection so that if the bank or credit union fails, you will still get your money back. The FDIC and NCUA will insure deposits of up to $250,000 per person per institution, so if you have more than that, split it up between different banks or credit unions.
3. Consider Your Needs
Consider how you will use the account. A few questions you might ask yourself include:
- How much money will you deposit when you open the account?
- Are you looking for a place to put some money that you’ll only access in an emergency?
- Will you be making contributions to the account on a regular basis?
- Do you need an ATM card to access the money or do you want to be able to go into a branch?
Looking around for the best bank account might seem like a lot of work, but it can pay off for you in the end. Savings accounts with the best interest rates can mean hundreds of dollars more in your account each year if you know where to find them.
All rates are accurate as of Aug. 6, 2017, except for Ally Bank, which is accurate as of today.