How to Pick Your High Interest Savings Account

High interest savings accounts help you make your money work for you, while also making your hard-earned funds easily accessible. With so many options out there, it can be hard to know exactly HOW to pick a high interest savings account that’s right for you and your future.

If you’re a little or a lot-a lost on where to start, read this lesson what to consider when you’re looking to pick a high interest savings account.

What is a High Interest Savings Account?

A high interest savings account is a savings account that has a higher interest rate than a traditional savings account.

On a high interest savings account, your annual percentage yield (APY) can be up to 25 times more than a traditional savings account.

Note: For those that don’t know what Annual Percentage Yield (APY) is, it is simply the interest you earn annually on your money. Higher APY = more money.

The average APY for a traditional savings account is around 0.25%, but that’s generous for most banks or credit unions. High interest savings accounts can earn well over 1% APY.

What is the Difference Between a High Interest Savings Account, a High Yield Savings Account, and a Money Market Account?

You’ve probably heard all those terms and keep wondering what the difference is. You’ll hear them interchangeably because they are very similar, but they do have slight differences.

Okay, I kinda lied. A high interest savings account and a high yield savings account are just synonyms for each other.

However, a money market is slightly different because it will act more like a checking account, meaning you can use a debit card or write checks that will directly pull from the money market.

High interest savings accounts do not allow this. You will have to transfer your funds from the high interest savings account to another account to withdraw it.

However, interest rates between money markets and high interest savings accounts are incredibly competitive these days. So, in terms of interest and earning, you can’t go wrong with either one.

Where Can you Find a High Interest Savings Account?

High interest savings accounts are almost exclusively offered by online banks.

You will very rarely find a high interest savings account from a brick-and-mortar bank. This is because brick-and-mortar banks have to pay added expenses such as building maintenance, staff maintenance, and utilities. This means they don’t have the savings to pass on to the customer.

The online banks that offer high interest savings accounts don’t have those added expenses. They don’t have a building to maintain or utilities to pay because most of their employees work from home. No added expenses means more money in the customer’s pocket.

When Should you Use a High Interest Savings Account?

You can get penalized for pulling money from a high interest savings account too frequently, so this shouldn’t be an account you’d be pulling from every day, or even every week.

You can use a high interest savings account when you have or are trying to save a large sum of money that you want easy access to.

High interest savings accounts can be great for storing your emergency fund, down payment for a house, or any other large sum of money.

Personally, an additional reason I use a high interest savings account is because it is not connected in any way to my regular checking account. Us ADHD folks file this under the “out of sight, out of mind” clause. You can automate savings to this account and just let it grow without having to worry about it.

If you need to take the first step in saving for your emergency fund or down payment, sign up to receive my free finance tracker!

How should you pick a High Interest Savings Account?

Now that you know what they are and how to find them, what are some things you should look for in a high interest savings account?

High Interest Rate

Okay, this might seem obvious but we’re still going to talk about it.

When looking for a high interest savings account, make sure the account you choose actually has a high interest rate.

At the time that I’m writing this in November 2022, the average interest rate on a high interest savings account is around 3%. Don’t settle for anything below that unless there is some other added benefit to choosing that particular account.

I’m going to use an age-old adage here though. If it seems too good to be true, it probably is. I have seen accounts out there that are offering 7-10% APY. That seems too good to be true so, it probably is.

Usually, the next crucial feature is missing from those Unicorn accounts.

FDIC Insured

ANY bank account you open should be FDIC insured, but absolutely a high interest savings account.

The Federal Deposit Insurance Corporation, or FDIC, is an independent agency that was created by the government to insure your deposits by supervising financial institutions for safety and soundness.

The FDIC will insure any money you have in a bank account, up to $250,000. This means that if the bank fails or loses your money, you will be reimbursed by the FDIC for up to $250,000.

So, if you’re using a high interest savings account to house your housing deposit or your emergency fund, you want to make sure that you’re protected should that particular bank go belly up!

Minimum Amount to Open

Some high interest savings accounts will have a minimum amount you need in order to open your account. Some will allow you to open with no minimum.

What does this mean? This means that if there is a minimum amount of $10,000 to open and you only have $500, you can’t use that account.

However, there are plenty of high interest savings accounts that have no minimum to open, so don’t fret if you’re just getting started!

Ease of Access

In this digital age, it’s very rare that you would need to jump through hoops to access anything, let alone your money, but it’s still something to look out for.

When choosing your high interest savings account, you want to confirm how easy it is to deposit or remove your money.

Almost every bank has an app these days, and they all have a website. You should be able to access your money using one of these avenues.

Transfer Time

You’ll want to confirm how long it will take you to remove money from the account, should you need to.

Some banks will use this information to brag on their website, but sometimes you may have to look up reviews for that particular bank to find it.

If you have an emergency and need your money quickly, the bank taking a week to get it to you is no bueno. Make sure the bank has a decent transfer time. I try to aim for three days or less.

Keep in mind that these accounts will act like any other account when you try to transfer money. The larger the amount, the longer it will take to move.

Amount of Transfers

Since you shouldn’t be using this account for your everyday checking account, this shouldn’t be an extremely important detail, but it is definitely still one to note.

Be sure to take note of how many transfers out of the account you are allotted without a fee. This is the number of times you are allowed to pull money out of your high interest savings account into another account before being charged. The average is about six transfers per month, but it can vary.

Reputation

You don’t have to pick the most well-known bank to open a high interest savings account, but you definitely want to go with one that has a good reputation.

You can find this out with a quick Google search. Check out Google reviews as well as full reviews from websites such as Nerd Wallet, Forbes, or Bankrate.

Is opening a High Interest Savings Account worth it?

If you’re anything like me, you LOVE to see data before you make any decision. In fact, I won’t make any decision without it. Some call it OCD, I call it smart.

So, are the earnings on a high interest savings account worth it?

Let’s try out some real numbers.

Let’s say your emergency fund is $20,000. You take that amount of money and set it and forget it into your high interest savings account, which earns 3.6% APY.

After one year, you would have earned $732 in interest!

Keep in mind that this is compound interest. Meaning that the following year you would earn 3.6% APY, or possibly more if rates continue to rise, on $20,732.

If you were to keep that same amount of moola in a traditional savings account that only earned 0.25% APY, you would have earned a measely $50.06 during the course of a year.

$732 >>> $50.06

What could you do with $732 a year? I have some ideas for myself (did someone say vacation?!). Seems like an easy decision to me!

If you want to calculate how much interest you would earn after you pick a high interest savings account, you can use this calculator.

There are a nauseating number of options out there, so when it comes time to pick a high interest savings account, it’s understandable to get easily overwhelmed.

However, now that I’ve armed you with the knowledge on how to pick a high interest savings account, you can narrow down your selection with more confidence!

You can also consult the experts, like those at Nerd Wallet or Bankrate, to help find consolidated information on the top high interest savings accounts out there.

As always, do your own independent research. Everyone has different lives and different situations, so what works for your one person may not be the best option for you.

Happy saving everyone!