How to choose a high-yield savings account

A solid savings account is critical in adulthood. Not only does it allow you to achieve your goals (like buy a house or take that dream vacation), but it also safeguards you in case of an emergency.

“High-yield savings accounts offer a safe, accessible place to set aside money while making a small return that would otherwise be lost to inflation if the money were kept in a checking or traditional savings account,” explained Eric Taylor, director of user experience at Varo Bank.

6 factors to consider when choosing a savings account

1. Interest rate
2. Online or brick-and-mortar?
3. Fees and restrictions
4. Insurance
5. Access and convenience
6. Customer service

1. Interest rate

To earn the most interest and build your savings the fastest, you’ll want the highest interest rate possible. Currently, the national average on savings accounts is just 0.09% APY (annual percentage yield), according to the Federal Deposit Insurance Corporation (FDIC). High-yield accounts, on the other hand, earn up to 0.90% annually — a significantly higher amount, especially on large balances.

Be careful, though, because high rates can be deceiving. Some banks only offer those sky-high earnings for a short amount of time, and after that, the rate will fall more in line with market averages.

“Be sure that the rates advertised aren’t just high introductory rates lasting only a limited amount of time or that the high rate advertised isn’t only on a portion of the balance held,” said Kali Hassinger, a certified financial planner at the Center for Financial Planning in Southfield, Mich.

HOW ARE HIGH-YIELD SAVINGS ACCOUNT DIFFERENT FROM TRADITIONAL?

2. Online or brick-and-mortar?

The highest-earning savings accounts tend to be with online banking institutions. These banks have lower operating costs and can, therefore, offer higher rates.

There are some drawbacks to online savings accounts, of course. You’ll need to be comfortable making transactions, receiving your statements, and sometimes, even working with customer service entirely online. If you’re not, a brick-and-mortar bank may be a better option.

OPEN A HIGH-YIELD SAVINGS ACCOUNT TO EARN MORE INTEREST ON YOUR MONEY

3. Fees and restrictions

Every bank has different fees, as well as requirements and restrictions. Consider the fees first — things like transaction fees, overdraft fees or annual maintenance fees — as these can eat away at your account’s earnings.

Then, look into any account requirements. Do you need to keep a minimum balance? Are you limited to a certain number of transactions? Will you get hit with a penalty if you don’t fall in line? Understanding these restrictions is critical to choosing the right account for your finances.

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4. Insurance

You’ll always want a bank that’s insured by either the FDIC or the National Credit Union Administration (NCUA). This protects you (and your money) in case the institution goes under. With both types of insurance, you’re protected on up to $250,000 per depositor.

“Beware of savings accounts that are not FDIC- or NCUA-insured,” said Ken Tumin, banking expert for DepositAccounts.com. “Make sure the institution that’s marketing the savings account is an FDIC member bank or an NCUA member credit union.”

PROS AND CONS OF HIGH-YIELD SAVINGS ACCOUNTS

5. Access and convenience

Being able to get to your money is also key, so ask any bank you consider how their transactions and transfers work. Do you have to do it in-person? Is there a waiting period? Can you request a card for the account to make accessing your funds easier?

“If the account is for emergency savings, make sure you can easily access the money,” Taylor said. “Ideally, look for an institution that also offers checking accounts, so you can quickly access your savings with a debit card.”

6. Customer service

Though it’d be nice if everything went without a hitch, that’s not always the case. Make sure the bank you choose offers easily accessible customer service (phone, email, chat, etc.), as well as convenient office hours.

You should also check customer reviews and see what past clients have said about the bank. This can give you a good idea of how easy customer service is to work with.

The bottom line

High-yield savings accounts can be a smart way to save up funds, but don’t just choose the first one you come across. Shop around, compare accounts, and consider each institution’s fees, insurance, rates, accessibility, and more.

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