Are you still using the same checking and savings accounts you’ve had since you were a teenager? I still remember when my parents took me to Bank Of America in high school to open up my first savings account. I felt so grown up and loved getting to customize my debit card (I chose the wolf theme). I didn’t think about asking whether there were fees or what the savings interest rates were, I thought they were all created equally. I was wrong.
Did you know that the average brick-and-mortar bank has a savings rate of only 0.07%? In fact, my Bank Of America savings account only has a savings rate of 0.03%, much lower than the national average. That means if I had $10,000 in savings, I would only be earning $3 per year in interest.
The savings rates on high yield savings and money market accounts go up to 1.75% (I even found a high yield savings account that has a rate of 1.90% but you have to 12,500 daily steps to access that rate #HealthIsWealth). That means for that same $10,000 balance, I would be earning $175 a year! Literally $173 more for doing nothing! You can use this calculator to estimate what you could be earning if you switched to a high yield or money market savings account.
My favorite ways to earn money are the ones where I can earn passively with minimal effort. High yield savings accounts and money market accounts both offer higher savings rates but a money market account is more similar to a checking account because you can access your money easier than with the savings accounts. Read on to find out which one is a better option for you.
What Is A High Yield Savings Account?
First, let’s define what a savings account is- a savings account is where you can keep your money and have it earn interest for you over the years. Savings accounts are where you store your emergency fund, future travel expenses, or maybe even a down payment on a house.
Most of you probably have experience with a savings account at traditional banks like Chase, Bank of America or Wells Fargo, but high yield savings accounts tend to be with online banks. By foregoing the traditional brick-and-mortar structure, online banks are able to offer higher savings rates because they have less overhead. A high yield savings account is essentially a savings account that can earn you much higher return due to the higher savings rates (1.75% APY vs. 0.07% APY).
Like traditional savings accounts, high yield savings accounts do not include an ATM/debit card for you to use, so you have less access to your money. But, you are still able to transfer and wire your funds between other accounts.
How Do I Choose A High Yield Savings Account?
The best way to choose a high yield savings account is by reviewing your current portfolio. Are you looking to transfer all of your money into a high yield savings account? Some of them require minimum deposits. Is your account going to be an emergency fund that you rarely touch, or something that you will need regular access to? If you need regular access, you might want to consider a money market account, read on to find out about those.
Here are the top 3 high yield savings accounts I’ve found (based on rates):
- Live Oak Bank rate of 1.75% (read review here)
- First Foundation Bank: rate of 1.75% (read review here)
- ConnectOne Bank: rate of 1.75% (read review here)
Make sure you do your own research as these rates can change, CIT bank used to have a 1.75% rate and was ranked highly by College Investor, Nerdwallet, and Investopedia, but it has now dropped to 1.70%.
Investopedia, Nerdwallet, and The College Investor have all compiled lists of the best high yield savings accounts out there. I would use their lists as a starting point to find the right one for you!
Some things to look for during your research:
- Is there a minimum balance or deposit requirement?
- Are there any fees associated with the account?
- What is the savings rate/APY (Annual Percentage Yield)?
- How easy is the platform to use?
What Is A Money Market Account?
Many bloggers talk about high yield savings accounts, but they do not mention money market accounts. It is important to look at both as one might be better suited for your lifestyle. A money market account is like a high yield checking account. They can also provide you with checks and an ATM/debit card to use.
These accounts are meant for those who need more regular access to their money, and sometimes have higher savings rates than high yield savings accounts. But, some require higher monthly deposits and balances than a high yield savings account. Make sure to research both before choosing which one works best for you.
How Do I Choose A Money Market Account?
A few of these money market accounts require a minimum deposit of $5,000 but there are still some that do not have a minimum deposit requirement. If you struggle maintaining a budget due to having easy access to your money, you might want to consider a high yield savings account instead. A money market account allows easier access than a high yield savings account.
The top 3 I found were (based on rates):
- CIT Bank : Rate of 1.75% (read review here)
- Northern Bank Direct : Rate of 1.75% (read review here)
- BMO Harris Bank: Rate of 1.75% (read review here)
You can find more options on Smart Asset, Nerdwallet, The College Investor and US News.
Some things to look for during your research:
- Is there a minimum balance or deposit requirement?
- Are there any fees associated with the account?
- What is the savings rate/APY (Annual Percentage Yield)?
- How easy is the platform to use?
Which is better, a High Yield Savings account or a Money Market account?
Now that you know you can earn much more in interest than at your traditional savings account, you’ll have to decide between opening a high yield savings account and a money market account.
For some, it might be a no-brainer to go with the high yield savings account so that they can set up automatic transfers and rarely touch that money, but for others the potentially higher savings rate of a money market account might make more financial sense. It is a completely personal decision that depends on your finances and lifestyle. You can also open both for a few months and see which one you prefer! But, be sure to research whether there are fees associated with closing the accounts if you decide to not go through with them after your trial. You should also check whether the bank is FDIC insured which you can do with this FDIC bank find tool.
Something to keep in mind is that the IRS will tax the interest earned on your high yield savings account as if it is income. But, this is the case for all savings accounts, even traditional ones. If you have never received a Form 1099-INT, chances are your current bank account never earned you more than $10 in interest which is another reason why these higher yield accounts are worth trying out.