The Best High-Yield Savings Accounts for September 2023
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How to Get the Best High-Yield Savings Accounts
Find the best high-yield savings account rates by comparing with Financer.com
What is a High-Yield Savings Account?
High-yield savings accounts provide a substantially greater annual percentage yield (APY) than conventional savings accounts.
Account holders can increase their returns on savings while still enjoying the security of a federally insured account.
Some banks offer introductory rates on high-yield savings accounts that may only be available for a short period of time. The savings rate on the majority of high-yield savings accounts is variable, which means it could change over time.
Customers looking for a fixed rate should rather consider a certificate of deposit (CD), while customers seeking both a fixed APY and penalty-free withdrawals may find a no-penalty CD to be a viable choice.
Get the Highest Savings Rates
Variable rates on high-yield savings account rates are subject to market conditions, Federal Reserve policy, and economic changes over time. Keep in mind that rates can also vary depending on the overhead costs of each financial institution.
- First, check with your bank or credit union. Many financial institutions offer high-yield savings accounts, like CIT Bank which offers 1.90% APY on its Savings Connect account, or the Barclays Online Savings account, which offers 3.00% APY.
- Think about online banks. Online banking has lower overhead costs, allowing them to charge lower fees and offer higher APYs than brick-and-mortar banks. SoFi, Varo, and Marcus are some of the most popular online banks.
- Compare more than just rates. When choosing a bank to join, you should consider fees, withdrawal limits, and minimum required balances.
Make sure that you choose an FDIC-insured financial institution. This will protect you and your savings in the event that the bank goes under.
Why Compare High-Yield Savings Accounts At Financer.com?
How High-Yield Savings Accounts Work
You can increase your interest compared to a standard savings account by using high-yield accounts. The national average annual percentage yield (APY) for savings accounts is 0.1%.
Even lower-yielding savings accounts are available, some of which are provided by the big brick-and-mortar banks.
Money deposited in a high-yield savings account begins to accrue interest right away. That interest then starts to accrue interest and is normally credited on a monthly or quarterly basis. It's called compound interest and it's how you can grow your money over time.
The yields on high-yield savings accounts are often variable, which means banks can change the rates at any time. Rates were on the decline until the beginning of 2023, when some banks started to raise APYs.
High-Yield Savings Terms
APY: Annual percentage yield is the real return rate that your savings account will earn. It factors in the interest rate and compounding interest. It's the best way to compare savings yields between accounts.
Compound interest: It basically means your interest is earning interest. Instead of only earning interest on the principal amount, you will earn interest on the principal and the previous interest earned on your principal. This means you'll grow your savings faster.
Monthly service/maintenance fee: This is a monthly charge by the bank, typically if you go below a certain account balance.
Regulation D: This is a Federal Reserve rule that limits the number of transfers and withdrawals you can make from your savings account in a monthly statement cycle. Even though the Federal Reserve removed these limits in 2020, some banks still have restrictions on withdrawals and transfers.
Annual Percentage Yield (APY)
The APY is among the most important factors to take into account when comparing high-yield savings accounts.
APY takes into account the effect of compounding, which includes interest on your initial deposit as well as interest on top of other interest earnings.
Higher APYs are typically preferable, but it's crucial to consider them alongside the criteria to earn the yield.
The compound interest calculator on Financer.com can be used to estimate your potential earnings on any type of savings account.
Minimum Deposit Required
Each bank has a different minimum deposit requirement; some banks don't ask for anything at all, while others ask for $10,000 or more.
When comparing high-yield savings plans, decide how much you can really invest. Think about how much you're willing to save and for how long if you're aiming to achieve a specific goal.
It pays to verify the minimum deposit requirements at all the institutions you're considering before opening an account because accounts with greater minimum deposit requirements might not give the best rates.
Online banks, for instance, frequently don't have minimum deposits or balance requirements, and some don't even have monthly maintenance costs.
Minimum Balance Required
Some high-yield savings accounts may have a minimum balance requirement in addition to a minimum deposit required to start an account to qualify for the APY offered or avoid fees.
When comparing the minimum balance requirements of different high-interest savings accounts, it's crucial to take into account how frequently you'll need to access the money and whether you'll be able to keep the level high enough to receive the APY.
Pros and Cons of High-Yield Savings
- Typically pay a much higher APY than traditional savings accounts.
- Many offer digital tools that allow you to manage your savings through your smartphone or tablet.
- High-yield savings accounts at most banks and credit unions are insured by the federal government.
- Funds deposited in a high-yield savings account are easily accessible.
- Rates for high-yield savings accounts are variable and may fall.
- Some banks restrict withdrawals/transfers to only six a month.
- Checks generally can’t be written on savings accounts.
Best Uses for a High-Yield Savings Account
Saving for a large purchase
Traditional mortgages for purchasing a primary or secondary home typically require a down payment of at least 5-20 percent to avoid private mortgage insurance. FHA loans require a down payment of at least 3.5 percent.
So, how much money is needed to save for a down payment on a $200,000 home? If you want to put 20% down, you'll need $40,000, if you want to put 5% down, you'll need $10,000, and if you want to put 3.5% down, you'll need $7,000.
Saving that amount of money may take some time, but a high-interest savings account can help move toward the goal faster. Here’s a general estimate of how long it would take to save up a 20%, 5%, and 3.5% down payment on a $200,000 home, assuming you have a high-yield savings account paying a 0.6 percent APY:
- 20%: Three years. (Initial deposit of $1,000 and then contribute $1,076.36 each month.)
- 5%: One year. (Initial deposit of $1,000 and then $749.50 every month for a year.)
- 3.5%: Six months. (Initial deposit of $1,000 and then about $999 every month.)
Buying a car also will likely require a down payment, should you be looking to finance the purchase. Saving up and paying for a car with cash is a better choice, if you have the means since it will save you interest payments and financing fees.
Saving for the Future
When saving for a child’s education, it’s best to start early and save often. College savings plans like a 529 plan are a good solution because money grows tax-free. It also isn’t taxed when the money is taken out to pay for college.
But college tuition costs can sneak up fast, and a high-yield savings account can be a solid alternative in last-minute situations when saving is essential.
To successfully use a high-interest savings account for college tuition, you’ll need to set a savings goal and calculate the monthly investment needed to hit that goal. For example, let’s say you need $50,000 for college tuition and your child is in seventh grade. If you open a savings account with an initial deposit of $1,000 yielding 0.6 percent APY, you’d need to deposit an additional $806 a month to hit your goal by the time your child heads off to college.
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High-Yield Savings - FAQs
Are high-yield savings accounts safe?
Safety is an important feature of high-yield savings accounts. They are insured by the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Share Insurance Fund (NCUSIF) for up to $250,000.
If you lose money due to theft or fraud, your account will be reimbursed. You should also check your account frequently for unauthorized withdrawals or transactions and report them immediately to the bank.
Why are most high-yield savings accounts online?
The best high-interest savings accounts are usually found online. These banks typically offer the best yields and one reason why they can do this is that they have fewer expenses by not operating physical branches.
Are there risks to a high-yield savings account?
it might be risky if you go above the FDIC insured limits or bank with an institution that is not FDIC-insured, because a bank failure would put your money at risk. You can avoid this by confirming your bank is FDIC-insured, using the FDIC’s BankFind Suite.
You should also confirm that your money is insured by using the FDIC’s Electronic Deposit Insurance Estimator (EDIE) and knowing the limits, guidelines and ownership categories. If you bank with a credit union, make sure the institution is backed by NCUA insurance.
Do I have to pay tax on interest earned from my high-yield savings account?
The IRS states that interest earned on bank accounts is taxable. Interest is usually taxed as ordinary income and all interest income is taxable, even if it’s not reported on a Form 1099-INT.
Will high-yield savings rates increase?
The Federal Reserve has raised the federal funds rate three times during 2023, with the latest increase in June, when the Federal Open Market Committee raised the fed funds rate by 75 basis points or 0.75 percentage points.
Yields on high-yield savings accounts tend to change before or after the Fed raises (or lowers) the fed funds rate. With the Fed moving to raise interest, some banks and credit unions have raised APYs to remain competitive and attract deposits.