Some new year’s resolutions, like new diets and exercise routines, demand daily attention and energy, but here’s at least one that can take less than 15 minutes: Open a high-yield savings account.
For Jenell Stewart, switching banks to catch a high rate was a no-brainer. She got a letter from an online bank advertising a savings account with a 2% rate at the time.
The rate was “crazy high,” says Stewart, a New York-based business coach and entrepreneur. She adds, "I spent a lot of time not getting interest” on my savings.
Once she opened the account online and added some emergency funds for housing costs, she averaged about $15 to $16 in interest monthly. That’s almost $200 a year.
Here’s how a high rate can help you achieve savings goals — and why opening a high-yield account is a good use of a few commercial breaks.
» Find high rates: NerdWallet’s best high-yield online savings accounts
1. You’ll save more money faster
Big changes to your finances, such as paying off debt or getting a raise, play a serious role in being able to save more money over time. But where you keep your savings also matters.
Investments in the stock market have the highest long-term average returns — around 7% to 8% after inflation — but the market isn’t best for money you may need to access within a few years, since returns fluctuate and there’s a risk of losing that money.
"A high-yield savings account is one of your best bets outside of the stock market,” says Maggie Germano, a Washington, D.C.-based financial coach for women.
Germano recommends stashing emergency savings, meaning several months’ worth of living expenses, into an account that’s easy to access. Any regular savings account could work, but a high-yield account has the added advantage of earning at least 15 times more interest than the national average rate for savings accounts, 0.06%.
For example, keeping $5,000 in a savings account with an annual percentage yield, or APY, of 0.09% earns $4.50 in interest after 12 months. In contrast, leave $5,000 in an account with a 1.50% APY and you earn $75 after a year. And that’s before factoring in money you add to the account throughout the year.
» Want to put aside more cash? Here’s how to save more money
2. You’ll avoid more fees
Savings accounts at traditional brick-and-mortar banks tend to have a monthly fee or requirements such as maintaining a certain balance to waive that fee.
“At my old bank, I had to have $2,500 in my savings account to not get charged a monthly fee,” Germano says.
High-yield accounts are generally free with no strings attached. They’re usually offered by online banks and credit unions, which don’t have the overhead of maintaining branches and pass some of that savings on to customers in the form of higher rates and fewer fees.
Even a $5 monthly fee adds up, and you don’t want to be losing money in an account that’s supposed to help build your savings.
3. They have helpful account features
Some online banks let you open multiple savings accounts with low or no minimum balances. Ally and Capital One, for example, also let you nickname your accounts, so you can save up for different goals easily. And if you set up automatic transfers from your checking account or split direct deposits from your paycheck, you can save consistently without having to think about it.
» See our list of banks that allow multiple savings accounts
Start the new year with effortless saving
A high-yield account is no substitute for regular savings contributions. But it will give you a boost for your nest egg, and that stays true even if your savings rate doesn’t stay the same.
If your rate drops, as some have in the past year, “it’s normal to be frustrated and a little nervous,” Germano says. "But try not to make big decisions.” Multiple banks might lower their rates around the same time as a response to the Federal Reserve dropping its rate.
“If the economy starts turning around in a positive direction,” Germano adds, typically “interest rates will start going back up again."
In general, a high-yield account is your ticket to more savings. For Stewart, knowing that she could switch to such an account made a difference.
"I wish I did it sooner," Stewart says. "But I’m happy that I know now."