By Joe Dyton, WCI Contributor
There are a number of things you can do with your remaining income after you’ve paid your bills—and many of these options revolve around savings. You’re encouraged to save a portion of your income for retirement. That’s a wise choice, though eventually, you might max out on how much you can contribute. But what if you have more money to save and want to see it yield a return like your other investments? A high-yield, online savings account can be a good place to put any excess funds you might have.
While you might not earn as high of a return as you would investing in the stock market or in real estate, it’s at least earning something—and certainly more than it would in a traditional savings account. Plus, funds in an online savings account are more easily accessible in the event of a financial emergency. You don’t have to worry about selling stocks or facing any potential fees that you would if you had to withdraw early from your IRA or 401(k). Your portfolio is all about balancing liquidity with returns, and an online savings account can be a good compromise for you.
If you opt to use an online savings account, the key is selecting the right one. The best account will vary by an individual’s needs, but looking for one with a high annual percentage yield (APY) is a great place to start.
Keep reading to learn more about high-yield online savings accounts, how they work, and which ones might be the best fit for you.
What Is a High-Yield Savings Account?
A high-yield savings account works similarly to a traditional savings account, but it typically earns a higher APY—approximately 4% (in 2023, at least) compared to the national savings average of 0.43% APY. Many banks can afford to offer high yields because they don’t have physical locations, which are costly. While customers with an online savings account can’t go to their local branch to deposit or withdraw money, it’s easy enough to transfer funds from their savings to their everyday checking account.
More information here:
How Safe Are High-Yield Savings Accounts?
A high-yield savings account might earn better than a traditional one, but your money is just as safe. As long as your online bank carries FDIC insurance, which most do, at least $250,000 of your deposits are protected even if that financial institution were to fail. FDIC-insured banks should have some sort of acknowledgment of this protection on their website.
How to Choose the Best Online Savings Account
A high interest rate and low service charges are two of the main things you should look for in an online savings account. Avoid banks that charge a monthly fee if you can. Some banks don’t charge fees at all, while others may require a minimum balance to avoid them. Look for a bank that doesn’t require a minimum balance, or if it does, just make sure it’s one you are confident you can maintain. If you think you’ll be withdrawing money from this account often, check to see if your bank limits how many withdrawals you can make in a month.
More information here:
What Are the Best Online Savings Accounts?
Again, “best” is relative when it comes to online savings accounts, but in terms of high APY and low fees, here are some accounts to consider based on our research:
As of September 2023, SoFi Bank offers an APY of up to 4.5% and does not require a minimum balance or charge a monthly fee. The downside is the bank doesn’t have a savings account-only option; you’d also have to open a checking account. Additionally, SoFi requires customers to have direct deposit to earn its top APY. Those without direct deposit can still earn a yield higher than the national average, however. SoFi accounts also come with overdraft coverage—up to $50 for customers with $1,000 or more in monthly direct deposits.
LendingClub offers a competitive APY of 4.5%. While there are no monthly fees with this online savings account, there’s a $100 minimum to get started. LendingClub also offers unlimited (free) external bank transfers along with ATM cards for savings account holders. Funds can be deposited with the bank’s mobile app, at select ATMs, or via direct deposit and electronic transfer from an outside financial institution.
Synchrony is a good option for those looking for a strong APY (4.5%) and easy access to their money. The bank offers optional savings account ATM cards. Customers are limited to six free withdrawals or transfers per statement cycle, and they are allowed to conduct as many ATM transactions as they’d like. Synchrony does not charge ATM fees, but be aware that the ATM provider might. Additionally, Synchrony Bank refunds ATM fees in the US up to $5 per statement cycle. The bank has no monthly fees or minimum balance requirement.
CIT Platinum Savings and Savings Connect accounts currently offer a 5.05% APY—on balances of $5,000 or more. The earnings drop significantly—to 0.25%—if your balance falls below $5,000, though. On the plus side, the minimum opening deposit is just $100, and there’s no monthly fee.
The bank’s Saving Builders account, meanwhile, has a significantly lower APY (currently up to 1%) and requires a $25,000 monthly balance or monthly recurring deposits of $100 or more. An account requires a $100 minimum opening deposit, but it does not have a monthly fee.
This relatively new online savings account (it started in April 2023) also offers a competitive APY (4.85%). No minimum opening deposit or balance is required. BMO Alto does require activity, however; you have to make a deposit within 90 days of your account opening date, or your account will be closed. The bank currently does not offer some of the conveniences other online savings accounts do, such as mobile check deposit, ATM access, or debit cards. But on the plus side, there are no monthly fees—and, of course, there's that competitive APY.
Is Opening a High-Yield Online Savings Account Worth It?
If your online savings account’s APY is high enough, it’s certainly worth it. Think about it—every $1,000 in your account would earn just $2.50 in a traditional savings account that paid 0.25%. Meanwhile, that $1,000 would earn $50 in a high-yield account with a 5% APY. As your balance grows in a high-yield savings account, so will your gains. It's the magic of compounding. Additionally, having a separate savings account that you automatically contribute to will make it easier to put more money away—and hold on to it since it’s away from your day-to-day accounts.
These are just a few of the many high-yield online savings accounts available. They all offer competitive APYs, but so do plenty of banks that aren’t mentioned here. Be sure to do your research as you select an online savings account, but remember: whichever one you go with, your earnings are almost guaranteed to be higher than what you’ll get in a traditional savings account.
The White Coat Investor is filled with posts like this, whether it’s increasing your financial literacy, showing you the best strategies on your path to financial success, or discussing the topic of mental wellness. To discover just how much The White Coat Investor can help you in your financial journey, start here to read some of our most popular posts and to see everything else WCI has to offer. And if you're inspired to build a sturdy financial foundation, make sure to sign up for our WCI 101 email series.