What should I be looking for in a high-yield savings account?

August 16, 2021 | By Jessica Goedtel, CFP®

Are you looking for a place to stash your emergency fund and earn more than a few pennies on your hard-earned savings? Move that money out of your boring checking account and instead switch over to a high-yield savings account, where you can earn dozens of pennies! Dozens!

In all seriousness, a high-yield savings account isn’t going to make you rich overnight – or ever, really. But they do earn more than most checking and regular savings accounts. More importantly, they provide a safe place for your money and still accessible within a few days if you have an emergency.

So which ones are the best? Here are some things to keep in mind when looking for right account for you:

  • Free. There are many free high-yield savings accounts out there. Avoid paying unnecessary fees, and look for accounts with no minimum balance.
  • Interest rate. As of this blog post (August 2021), average interest rates on high-yield savings accounts are around .40-.50%. There are higher rates out there, but there is usually some kind of trade-off (minimum balance, rate is for a limited term, etc.).
    • A note on interest rates: Even though rates are fairly low right now, interest rates on high-yield savings accounts are dynamic – meaning the rates will go up and down, unlike a CD where you are locked into a fixed rate for a set period of time.
  • FDIC Insured. FDIC deposit insurance protects you in case of bank failure (yes, it happens although usually with smaller banks). The FDIC will insure your deposit up to $250k. Most high-yield savings accounts will have this coverage (but money market savings will not).
  • Interface. Most high-yield savings that pay a decent interest rate are online, so having a site that is easy to use and understand is important.
  • Goals. I’m a huge fan of having separate savings accounts for different goals (such as one for emergency savings, travel fund, or car down payment). Having the ability to create a separate account for each goal, or being able to earmark specific is a great way to stay focused on your savings targets.

My personal favorites are Ally, American Express, and Capital One Performance Savings (in no particular order)*, but there are plenty of great options out there. Find the account that works best for you and gets you motivated to keep working towards your savings goals.

*Pavilion Financial Planning has no affiliation with any of these institutions and receives no compensation from them.

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