This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.
The right savings account is a must to get the most from your money.
Image source: Getty Images
Since last year, there have been several interest rate hikes. While savings accounts previously offered barely anything, that’s no longer the case. Many of the best savings accounts now have APYs from about 3.5% to 4.5%.
However, not all banks offer anywhere near that much. For example, if you stick with a big bank, odds are you’ll earn a significantly lower interest rate. Some of them offer as little as 0.01%.
Save: This credit card has one of the longest 0% intro APR periods around
More: Save while you pay off debt with one of these top-rated balance transfer credit cards
It’s a smart move to earn as much interest as possible, but it’s even more important when you have a large amount of savings. To demonstrate that, let’s look at how much $20,000 in savings will grow, depending on the account you choose.
How much $20,000 earns you in a savings account
Savings account APYs (annual percentage yields) vary quite a bit. The table below shows how much you’d earn in one year depending on your account’s APY. It compares APYs of 0.01%, since that’s what some big banks offer, the current national average of 0.35%, and a few rates available right now through high-yield savings accounts.
There’s no arguing that you lose a lot of money if you keep your savings in the wrong place. You’re looking at a difference of about $700 to $900 between the top savings accounts and those with a subpar to even an average APY.
Why do savings account rates differ so much?
The primary reason why some savings accounts have much higher interest rates is because they’re offered by online banks. These banks usually don’t have branches you can visit, which saves them money on overhead costs. Banking locations and the staff to run them aren’t cheap. Because online banks save in this area, they can pay more interest than brick-and-mortar banks.
Online banks also need to offer those competitive rates to attract and retain customers. Big banks already have established brands and massive customer bases, so they don’t need to compete on interest.
This means in-person banking normally isn’t an option if you want a high interest rate. Some high-yield savings accounts also don’t offer a debit card. You may need to transfer your money to a checking account first to withdraw it. While this isn’t always convenient, it’s not a huge drawback. After all, savings accounts are designed for storing your savings, not moving money back and forth.
How to maximize your savings
If you don’t have a high-yield savings account already, it makes sense to open one. You’ll earn much more interest, and there’s no downside. Online banks are just as safe, as they offer the same FDIC insurance as the big banks. That covers up to $250,000 per account in the event of bank failure.
There are plenty of high-yield accounts to choose from. While APY is one of the most important features, also look at minimum deposit requirements. Not all accounts have these, but some require a minimum balance to earn the APY. Check for monthly maintenance fees, as well. Most of the top online banks don’t charge these, but it’s still good to double check.
Once you’ve found an account you like, you can sign up online. You’ll need to provide your address, Social Security number, and possibly a scan of your government issued ID. The process of opening a bank account online is usually quick and easy. After that, transfer over your savings to start earning interest.
These savings accounts are FDIC insured and could earn you 14x your bank
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 13x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2023.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.
