Do You Have Your Money in the Wrong Account?

Editor’s Note: The APYs for high-yield savings accounts listed in this article are up-to-date as of the time of publication. They may fluctuate (up or down) as the Fed rate changes.

The economic fallout from the coronavirus has left many people feeling uncertain about their future, and as a result, many are prioritizing saving for an emergency fund (including myself).  When you need a place to keep your money that you’ll use for bills and buy groceries, a checking account is an obvious choice.  But when you want to put money aside for future needs (i.e. emergency fund, vacation fund, etc.), the best option is a high-yield savings account.

My personal preference is the high yield savings account.  A high yield savings account is an account that pays higher interest than the average savings account.  Typically, people hold a savings account in the same bank in which they have a checking account, making transfers between the two accounts quick and easy.  While your local brick-and-mortar bank may be a great option for a checking account, due to things like a branch being close to your home or the number of ATMs they have, they may not be the best option for your savings account. 

In most cases, you’ll find that the lowest interest rates paid for savings accounts are at your local brick-and-mortar banks.  This is in part due to their huge overhead expenses brought on by paying for bank branches and ATM machines.  Big banks often offer a 0.01% APY on their basic savings accounts.  Sometimes the rates will be higher if you have large amount of money in your account, but even then, the APY is rarely above 0.10%.

According to the FDIC, the national average interest rate on savings accounts is currently 0.06% APY.  Below is the most recent rates from Chase bank showing that the highest interest rate you can earn is 0.05% and that’s only if you have over $250,000 in your savings account and have a Chase Premier Plus checking account.  Without the Premier Plus account, you would earn a measly 0.01%.

Online banks offer the highest interest rates on the market while charging fewer fees than traditional banks.  Online banks pay 10 – 20 times higher in interest because they have fewer overhead expenses than traditional brick-and-mortar banks.  These banks will typically have no physical branches and no ATMs, but will often offer good websites and mobile apps that let customers deposit checks and pay bills.  While this may feel awkward initially if you’re used to both accounts being at one bank, today’s technology allows you to easily transfer money electronically between banks.  Moving money between your checking account at Bank A and your savings account at Bank B is a simple process.  

If your money is in an account that earns a higher interest rate, your balance will grow faster without any additional effort on your part.  We’ll do a simple comparison to see just how much money you could be missing out on by keeping your money in a normal savings account versus a high-yield savings account, let’s say you have an account with $5,000.  If you’re holding $5,000 in savings that pays the national average of 0.06% APY, you would earn just $3 over the course of a year.  If you instead put that same $5,000 in an account earning 1% APY, you’d earn $50 after a year.  It may not make you rich, but the earnings are much better than an account with a 0.06% APY, which would earn about three dollars.

When shopping around for the right savings account, it’s important to know how your savings account compares against the competition.  Are you currently earning below the average savings account interest rate?  Are there other banks that would allow you to earn more in interest?  For those who are saving their money in a traditional savings account in your local bank, you may want to consider switching to a high-yield savings account with an online bank.  I’ve picked the five best high-yield savings accounts, and all of them offer an annual percentage yield (APY), that is at least 17 times more than the 0.06% national average APY

Bank / InstitutionAPYMonthly FeeMinimum BalanceOffer ATM Card?
Ally Bank1.10%None$0Yes, if you have an Ally checking account
Synchrony Bank1.05%None$0Yes
Vio Bank1.21%None if you select online statements$100No
Varo Bank1.21%None$0Yes, if you have a Varo checking account
Live Oak Bank1.15%None$0No

I generally recommend a high-yield savings accounts, they’re a great way to build an emergency fund.  You’ll generally earn more interest while still having access to your cash whenever you need it.  Even though the APY you earn on high-yield savings accounts can go up and down at any time, it’s still a good option to save for a rainy day or a future big purchase. 

One Response to Do You Have Your Money in the Wrong Account?

  1. Jordan Turner says:

    Cool article. I was curious how much my savings account paid after reading this. I found out Wealthfront it was only .35% in interest so I opened an account with Varo bank to get the 1.21%. It was pretty quick and easy plus the app seems cool. Thanks!

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