“Traditionally, people have held a savings account at the same bank where they hold their checking account, making transfers between the two easy and quick. But with the advent of internet-only banks, as well as traditional banks that have opened their doors to customers across the country using online account opening, the competition on savings rates has skyrocketed, creating a new category of high-yield savings accounts.” – Investopedia
What is a High Yield Savings Account?
First, let me explain what a high yield savings (HYS) account even is. I only learned this a few years ago, so don’t worry. This information isn’t as easily accessible as it should be.
It is simply an account that earns you higher interest on the money you keep in it than a traditional bank account. For example, most bank accounts earn you 0.01% interest on your money. Have you ever noticed pennies added to your account titled “interest payment”? That is your interest. I used to only ever earn pennies until I opened a high yield savings account. HYS accounts generally have rates that range from 1.6-2.25%. (Note that the rates change from time to time) Once I opened up an HYS account I started earning dollars rather than pennies.
How much money should I put into it?
So far, this year I have earned at total of $443.68 combined from my high interest accounts through Ally and Sofi bank. I’m on track to get at least another $100 by the end of the year.
Now I did get this high of an amount because over the course of the year Brandon and I saved up thousands of dollars in cash. Currently we have about $40,000 in cash saved. We did have more but we invested some of it.
You may be thinking, If I don’t have that kind of money, what is the point? One of my main philosophies that got me to where I am today financially is that every dollar matters. Say you only have $500 in savings at 1.6% interest. Over the course of the year that will be at least $8 (that is not even counting on compounding interest, which means that you gain even more interest on whatever amount you earn in interest).
Even $8 is more than what you had before so why not claim that money? Would you rather the banks have it for themselves? Are you worried the banks need those $8? I’m sure they can afford to part from it.
You may be thinking, well I want to keep my money with my local credit union that has lower interest rates but puts my money back in to the community. Well, I hate to break it to you but credit unions invest in the same things that the big banks do. They all invest in stock market and are contributing to things like fossil fuels and bad corporations like the rest of the banks do. Also, just because they are non-profits doesn’t mean they donate all the extra money to the community. It just means that they put any extra money back in to the business. It is good to be with a credit union if they can provide you with a high interest rate and some do. They also often provide low interest loans which are great. But a lot of credit unions have low interest rates too and if yours is only offering you a low interest rate it is time to say bu-bye!it
How do I find a High Yield Savings Account that’s Right for Me?
Well now that you have decided to do this how do you find the right HYS account for you? Now remember the interest rates at different banks change all the time so the right bank for you now may not be the right bank for you in 6 months. Don’t be afraid to open multiple accounts and move your money around to keep having your money grow. The first thing I would do is search best HYS accounts on google. Most of the banks that have the highest interest rates are the online banks. They have different rules they go by in terms of ATM fees etc… There are a lot of perks to using an online bank that I can go through in a different post. Just make sure you do your research so you make sure you don’t have to pay any fees with whatever bank you go with.
I currently have HYS accounts right now through Ally, Sofi and Simple bank. I have had Ally for the longest but opened a Sofi account to take advantage of their referral bonus program and higher interest rate this summer. Now that Ally and Sofi’s interest rates are low I moved about half of my money over to Simple which has a 2.13% interest rate right now if you have a certain amount in that account. I also opened that account to take advantage of a new account bonus that they offer (early next year I will be getting $500 from them as part of that promotion).
I’m sure I will be opening more accounts in the future as I find out about more promotions and higher interest rates in other places. I have no loyalty to any bank. These are greedy money making institutions and they have no loyalty to me so they do not deserve my loyalty.
Let me know if you have any questions in the comments.