When I was but a wee little thing, my mom took me down to the local branch of our regional bank and helped me open a savings account. We deposited my birthday money from Grandma, and I was told in no uncertain terms that I would thenceforth deposit half of my $2 a week allowance into the account (the other half went into the basket at church… a fact about which this apostate is still a little bitter).
Then Mom and the bank clerk told me of the wonders of my new savings account. “It’s a safe place to keep your money while you’re saving up for something like a car!” they said. “Plus, it earns interest.”
Interest, as you know, has the ability to work for you and for the forces of darkness in equal measure. You want your savings and not your debts to earn interest. So having a savings account is a great way to lure the vicious specter of interest to your side of the financial war.
I was all excited to check my balance and see how much interest I’d earned after a few months of dutifully depositing half of my allowance. But alas…
Baby’s first savings account wasn’t accruing jack shit in the way of interest. This is because most brick-and-mortar banks offer savings accounts with dismally uncompetitive interest rates.
I was facing an APY (annual percentage yield) of 0.01%. That’s… almost literally nothing. Which meant my savings weren’t even going to keep up with inflation if I trusted to the false promise that interest would help grow my savings.
Enter the high-yield online savings account.
The high-yield savings account
Unlike its typical milquetoast counterparts, the high-yield savings account actually fulfills the promise of interest-based savings growth. These sexy little accounts are a thing of the future, bestowed upon us by banks looking to stay competitive. They offer interest rates up to 1.8% APY, and they come with all kinds of perks like low or no fees, ATM access, and user-friendly online interfaces.
Here’s a list of some of the best high-yield savings accounts this year from NerdWallet.
Personally, I can vouch for Ally as far as being reliable, easy to use, and having a great online interface and customer service. And you know this recommendation comes from the heart because we don’t accept sponsorships, paid ads, or affiliate links here on Bitches Get Riches. (You’re welcome. Now please support our Patreon.)
But why do typical low-yield savings accounts even exist if high-yield savings accounts are a thing?
For one thing, the brick-and-mortar banks have an advantage when it comes to customer loyalty. My parents are still using the bank where I opened my first savings account simply because change is hard. It takes effort to research interest rates and transfer funds! And Janine at their local branch always gave their old dog a cookie when they stopped by, so that’s got to be worth at least 5% interest, right?!
For another, millions of Americans don’t even have a savings account. Which, while terrifying and tragic, means that low savings account interest rates is the least of their problems.
But you, my brilliant bastion of budgetary brilliance, are trying to get ahead. So you can’t afford not to transfer your liquid savings to a high-yield savings account right the fuck now.
Using myself as an example
I used to have my savings account at a regional bank. The account earned interest at 0.01%. I had $7,000 in the account, and in one month it earned… $0.05 in interest.
I decided to transfer $6,000 of that savings to an account with Ally. Their interest rate at the time was 1.25%. That’s a whopping 125% higher than my regional bank’s savings account!
In the first month I had the account open, I earned $5.19 in interest.
That’s over one hundred times as much interest as I’d earned in the same amount of time with my old savings account! And sure, $5 ain’t no thang… if you’re a financially illiterate person who is bad at math.
Thanks to the Law of Compounding Interest, that $5.19 is going to increase my monthly interest by leaps and bounds. It means my savings account is going to keep up with inflation even if I never deposit more money in it. The $0.05 in interest I’d earned before is but a pittance in comparison.
And I don’t know about you… but I like my money working for me while I do other shit! I imagine my dollars as lusty little bunnies gettin’ down with each other in the bank vault at night. All their little greenbacked bunny progeny better be taking up residence in my account!
Here are some other ways to make your money work with you while you go about your business:
- From HYSAs to CDs, Here’s How to Level Up Your Financial Savings
- Investing Deathmatch: Investing in the Stock Market vs. Just… Not
- Dafuq Is Interest? And How Does It Work for the Forces of Darkness?
But shouldn’t I be investing this money instead?
You should of course have investments. But investing your money limits how you can spend it. It’s great for the long term, or for retirement. But if you’re saving up for something in the short term, or if you need an emergency fund on hand, it’s useful to have some liquid savings easily accessible and keeping up with inflation.
So there’s lots of reasons why you’d want to have a big chunk of liquid cash sitting around for a little while. And there are approximately zero reasons why you wouldn’t want it earning as much interest as possible.
Avoid depreciation! Make interest work for you, not against you! Break up with your brick-and-mortar bank’s shitty savings program and get yourself a high-yield savings account! You don’t want to plant your savings in a fallow field, only to sprout the occasional nickel here and there. You want to be reaping them five-dollah bills on the regular, with no time, effort, or thinking required!
Great post! I’ve fought with my Mom about this for years to try to get her to be smarter with her money, but as you say, change is hard. I’m fortunate to have a great credit union that gives even slightly better rates than Ally or Alliant.
I also have better luck with a credit union. I was shopping around for better APYs a few months back, and I should’ve started by checking new account types at the one I already had my accounts at. When I looked into it, they were offering a new 2.0% APY checking account and I just upgraded my existing account. Easy feckin peasy, I’m so glad I looked into it!
(I’ve never particularly needed to have my savings out of sight and out of mind, I’ve had my emergency fund in my checking account for ages, anyway. I do realize there are people that option just wouldn’t work for, though.)
My one hesitation with things like this is how long it would take to transfer to my checking account in an actual emergency. Right now, my checking and savings accounts are both with the same bank, so if I need that money NOW, I can get it into my checking account immediately anywhere there’s an internet connection. My understanding is that an online bank would take a couple business days to transfer that over. I can think of a couple situations where, if an emergency arose on a Saturday, and you weren’t gonna see that money until Tuesday, you would be pretty screwed.
I’ve also had times when I’m planning a trip pretty far in advance, so I can keep my eyes open for deals and fare drops. Then, when something hits, I can transfer money out of my savings account right away to take advantage of the deal. When it comes to airfare, a 2-4 day wait could mean paying a lot more.
I have a pretty low limit on my credit card (I only got my first one 6 months ago), so I couldn’t really do a credit float in either situation.
Options:
Shop around for the best local bank/credit union. We have our checking and quick access savings at Capital One (the brick & mortar version). That savings earns .5% which isn’t too awful.
Keep “quick access” savings at your regular bank, but the bulk online. For example, if you have $10,000 savings, you can keep $2000 at your current bank, if that’s enough to handle the instances you mention above – like a travel deal.
What has your local branch done for you lately? Maybe you can go full online and take advantage of online checking perks along with a higher savings interest rate. We made the switch to a local bank a couple of years ago and have found that it has added almost no value over our online bank .
Having my savings at the same bank as my checking was the worst setup for me. I was constantly using savings as an extension of my checking account. No bueno. I moved my money to a local bank across town, turned down an ATM card, and only allowed incoming transfers. If I wanted to take money out of savings I had to go to the branch and do it. It helped keep my grubby paws off the money. Interest rate was crap though. I moved my primary savings to an out of state bank and am now getting .4% which is decent. I love seeing those $5-$6 interest deposits every month.
I use an Open Purchase Account for my savings, it yields about 7 percent per year and I can write checks directly from it…..but I never do, because its for emergencies, not for strip club days. ( Yes, I write strippers checks, what of it?)
https://damngirlgetyourshittogether.com/
Jesus woman get with the twentieth century. I pay all my strippers through Venmo these days.
You realize that OPA stands for Olivia Pope & Associates. No wonder that account has you raking in the dough. Now I need to check this out.
I’m an savings interest shopping whore. I’ll move my money at the drop of Jayne’s cunning knit hat if I find a higher interest rate! I love Ally though. They’ve mysteriously raised my rate TWICE in a couple of months time.
I spent almost a year stashing money in my bank account towards a downpayment on a home before I finally wised up and put in into an online bank account. I’m now getting 1.7%. I miss the money I could have had…but I’m glad that it is earning interest now, at the very least.
Great post! I checked my brick and mortar bank and for all of 2017, they proudly boasted a return of $0.27. I opened an account with Ally today and am excited to see it grow.
Wow, twenty-seven whole cents! What a windfall…
Thanks so much for commenting, dearie, and for wine and za the other night. You mean the world to me!
This post is the reason I opened an Ally account (that and they just upped to 2.2% APY! I wasn’t expecting them to raise it from the 2% I started at, and I’m super pleased) and I’m working on closing my brick-and-mortar chain bank savings (.01%?! An Insult!!!). That $5 something a month feels pretty good and hopeful.
This brings me SO much joy. <3
This post was super helpful, and I’m looking at moving my savings from my standard savings account with Amalgamated bank.
A question: how often do APY’s change or drop? The fine print for most of these accounts include a disclaimer such as, “Keep in mind, this rate is variable and may change after the account is opened.” It sounds like Ally has only gone up — but how mindful do I need to be of a APY drop? Is it common that they’ll drop from 2.2% after a year? And if they do, is one solution to just march my money right out and into another high-yielding account?