Do you know the interest rate on your savings account? If not, don’t feel too bad — most people have no idea. But since nobody really pays attention to this number, big banks get away with paying way below the fair market interest rate on most savings accounts.

Before we switched to a high-yield savings account, our bank was paying us 0.01% APY. That means we earned just ten cents a month for every twelve-thousand dollars we kept with them.

Strategically moving your cash to a high-yield savings account is one of the easiest financial optimizations you can make. It only takes a few minutes, and if you pick the right one, it can come with no additional fees or risk — just higher interest payments every month.

How Do High-Yield Savings Accounts Work?

Over the years, I’ve seen high-yield savings accounts paying between 20× and 200× the interest rates of their traditional counterparts. Any time you see a deal that far off from its competitors, you should ask, “How is this possible?”

A big reason high-yield savings accounts can afford to pay better interest rates is that most of the banks who offer them have no physical branch locations, which lowers their overhead costs. Typically, the banks offering the highest interest rates are 100% online.

Photo of bank vault for HYSA

Because of this, you’ll probably still want to keep some money in a checking account at a bank you can access through a local branch, and simply set up an electronic transfer link between that and your online savings account. Transfers can usually be set up through the high-yield savings bank’s website via an EFT (electronic funds transfer) for free, and the transfers normally take 1-3 business days.

Aside from free transfers, a good high-yield savings account will have no fees for normal account use, no account balance minimum, no direct deposit requirement, and will be FDIC-insured. Make sure a bank meets all of these criteria before opening an account with them.

Best High-Yield Savings Accounts

I found out about high-yield savings accounts back in 2012, and I’ve kept an eye on the interest rates at a bunch of banks since then. I also personally tried out five of them*. Ultimately, there are two that I highly recommend, and one I would stay far away from.

The two best high-yield savings accounts are offered by Barclays and Ally.

Logos of online banks with the best APY high-yield savings accounts

They both meet the basic requirements: FDIC insurance, no fees for normal account use, no transfer fees, no account balance minimums, no direct deposit requirements. They also both have easy-to-use websites that display information clearly and won’t waste your time.

One extra advantage of Ally Bank is that they offer custodial high-yield savings accounts for kids. Barclays doesn’t allow this.

Aside from all that, both have an excellent historical record of paying near the fair market interest rate. You can probably find a competing bank with a temporarily higher interest rate at any given time, but it’s important to pick a bank who consistently has a fair interest rate at all times — not the absolute highest rate at this moment.

At the time of writing this article (December 2021), a reasonable interest rate for a high-yield savings account is somewhere around 0.5% APY. Across the board, interest rates are at historic lows right now, but it’s still worthwhile to get the best rate you can. They change all the time (ours paid over 2% APY just a few years ago).

Update, September 2022: The fair market rate is around 1.8% APY now. Sure enough, both Barclays and Ally have adjusted their rates accordingly, just like they always do.

Update, January 2023: Now the market rate is around 3.4% APY, and both Barclays and Ally have continued to keep up. These things change constantly, but if you pick a great bank, you never have to worry about chasing rates.

If you want, use a comparison tool like Bankrate to browse some other options, too, but remember: The bank that’s offering the highest rate today might not be the best forever. It’s better to choose one with a proven track record.

As an example from my personal experience, I would recommend avoiding the high-yield savings account offered by HSBC, even if they are offering a nice sign-up bonus. Their interface is clunky, their customer service is abysmal, and they don’t have a very good reputation for having competitive interest rates all the time.

By the way, none of the above recommendations are paid endorsements or affiliate links. They’re just unfiltered opinions drawn from my own observations. Be careful when using comparison tools online, as many of them are biased by kickbacks from the banks they recommend. If you appreciate our free and always unbiased information, please consider some of the ways you can support this blog.

The Best High-Yield Savings Accounts Still Kinda Suck

At the beginning of this article, I told you that setting up a high-yield savings account is one of the easiest financial optimizations out there. That’s true, and you should get a high-yield savings account! But honestly, it’s also one of the least impactful financial optimizations you can make, so don’t get too excited about crossing it off your to-do list.

Graph of high-yield savings versus traditional savings
Compared to most traditional savings accounts (0.01% APY in 2021), a high-yield savings account will win by a large margin, even at today’s historically low rates (0.5% APY in 2021, which is assumed in this graph). But the difference still isn’t life-changing — all savings accounts are honestly pretty boring.

Because here’s the thing: Cash isn’t king…Cash is trash. Keeping money in a savings account (even a high-yield savings account) is a poor way to make it grow. In fact, after accounting for inflation, the “real” interest rate on a high-yield savings account is usually negative — your money loses purchasing power over time even as your balance grows with interest.

But everybody needs to keep some amount of cash on hand. Your savings account is a necessary evil.

We personally keep around 2-3 months of expenses in our checking account at all times, and another 6-12 months of expenses in our high-yield savings account as an “emergency fund.” Beyond that, all the rest of our money is invested so it can grow. It’s stored in stock and bond market index funds, or as home equity in our primary residence and rental property. These investments are much more exciting than a savings account, but they’re also riskier, which is why they are not suitable as a short-term safety net.

Graph of high-yield savings versus stock investment
This graph assumes a steady annual growth of 10% in stocks, when in reality, it would more likely be a jagged line with sharp drops along the way. This graph also assumes the current (2021) savings account rate of 0.5%, when in reality, savings account rates change all the time. But regardless of the year you’re reading this in, an investment in a stock market index fund is always likely to far outpace any savings account in the long run. Just remember — stock market investing comes with risk!

Get yourself a high-yield savings account today, and park your emergency fund there. It only takes a few minutes, and it’s definitely worth doing. But consider shoveling all excess cash beyond that into investments to grow your money faster.

And always remember that the amount of money you’re able to save is even more important than where you put it: Focus your energy on making more at work and cutting your biggest expenses like housing, transportation, and insurance. Those things will get you to financial independence way more quickly than switching bank accounts.

— Steven


* Nobody needs five different savings accounts at five different banks, and it’s actually pretty pointless to try to chase the best interest rate when all the high-yield accounts are usually within 0.2 percentage points of one another. So, you might be wondering why I signed up for five of these things. Truthfully, I got a few of them for the sole purpose of collecting sign-up bonuses and immediately closing them afterward. Serially chasing sign-up bonuses is called “churning,” and it’s a fun little side hustle that’s even more exciting with credit cards than it is with bank accounts. Doing this allowed me to test out a bunch of accounts for you, while making a few hundred bucks in bonuses to boot.

Share this and start a conversation: