How to choose a high-yield savings account, according to the pros

If you want to save money, keeping cash in your regular checking account isn’t always the best financial decision. Instead, you might be able to Earn more interest While keeping your money safe a High Yield Savings Account.

A high-yield savings account can be somewhat subjective, as interest rates fluctuate and people may have different opinions on what a good annual percentage yield (APY) is.

“While there’s no target percentage that’s considered a ‘high’ APY, finding an interest rate that beats the national average interest rate can make a big difference in growing your savings,” says Holly Carey, a CFP and VP, First Horizon Advisors, a Senior financial planner at wealth management company.

The Federal Reserve has rapidly raised the federal funds rate from near zero to a range of 4.5-4.75% over the past year, prompting many banks to raise the interest rates they pay customers as well. While the national average for savings accounts sits at just 0.35% in February 2023, Federal Deposit Insurance Corporation (FDIC)Many financial institutions offer much higher than average rates.

If you have $5,000 in a savings account with an APY of 0.35%, the national average, it will earn $17.50 in interest per year. Yet if you put the same amount in an account with a 4% APY, it would earn $200.

You can start researching the rates to see how much more you can earn here now or use the table below to get started

The more money you save, the more a High Yield Savings Account Can help you earn. Especially if you want to do a better job of keeping up with inflation rather than losing purchasing power, high-APY accounts can help you reach your goal. Inflation may still outpace this yield, but the gap may be smaller than in regular savings accounts.

How to Choose a High-Yield Savings Account

if you want Find a high yield savings account To help you earn more interest, consider these factors:

Analyze rates

before you Open a high-yield savings account, a good place to start is by analyzing rates. Beginning in March 2023, rates of around 3.50% – 4% are competitive, said Zach Novak, a CFP and principal planner at Facet, a financial planning firm.

However, interest rates can fluctuate, and you won’t be stuck with the way you are Certificate of Deposit (CD), in this case. So, you may want to focus more on how a high-yield savings account at one financial institution has fared over time than others

“Look at the bank’s rate history on offer. Is the rate a teaser rate or is the bank a consistent high-yield choice?” said Chris Maksimovich, a Certified Investment Fiduciary and President of Global Wealth Advisors.

And if a rate seems astronomically high, don’t rush in without doing your due diligence If it sounds too good to be true, it probably is,” Novak said

Explore rates and options now here or using the table below

Policy and feature evaluation

In addition to analyzing interest rates, consider what different financial institutions offer in terms of account features and policies. You don’t want to switch banks to earn higher interest rates only to offset those gains with higher fees.

Look at account costs such as “maintenance fees, transaction fees and ATM fees,” as well as account parameters such as “the maximum number of withdrawals allowed for a period or the rate that may be fixed for a period of time,” Carey said.

You’ll also want to consider whether the account is easy to use, Maksimovich says. Some high-yield savings accounts are online only, which may work for some savers, while others may want a bank or credit union with local branches.

Ideally, you can easily link your checking account to a new high-yield savings account and take advantage of automation. Automatic transfers “should be easier than checking into savings to build a balance and can make a big difference over time,” Carey says.

Look for federal insurance

To reduce risk, you’ll likely want your high-yield savings account protected by the federal government through the National Credit Union Administration (NCUA) at banks with FDIC insurance or credit unions. Both offer protection up to $250,000 per account holder.

“This means that even if your bank fails, your funds will be protected up to an applicable amount. Verify that your bank’s high-yield savings accounts are insured before opening your account,” says Carey.

If you have more money than the insured limit, you can spread the funds across different financial institutions to get more coverage.

“Those with large balances should consider opening high-yield savings accounts at multiple banks,” says Maksimovich. “Also, certain perks such as a deposit bonus may be available with some banks, which may make having multiple accounts worthwhile.”

Consider reputation

Finally, consider a company’s reputation before opening an account with them. A high APY may not be worth it if the institution is unreliable or difficult to work with.

“Search for customer reviews online to see if the majority report a positive experience with the bank’s customer service,” says Maksimovich.

Also consider the questions: “Is the company reputable and solvent? Have they been around for a while?” Note Novak.

You can start your search for high-yield savings accounts online now or use the table below to explore some local options.

Bottom line

Looking at factors like these can help you choose a high-yield savings account that’s trustworthy and helps you earn more money. Remember that interest income is usually taxable, but it’s still a relatively low-risk way to grow your savings. Interest rates will likely rise a bit more in 2023, these three experts project, but that doesn’t mean you have to wait to open a high-yield savings account. Your APY can increase on existing accounts, and the more your funds grow, the more you’ll earn (all else equal).

“It may be a good idea to switch to a high-yield savings account soon as the Fed raises rates. These interest rate increases, though [probably] Smaller than most of the 2022 increases, it’s likely that accounts will see their APYs increase,” Carey said