Updated: Mar 27
Learn what a high interest savings account is and why you need one - personal or business!
TL:DWTR (Too long, don't want to read)? Our TikTok video about high interest savings account is live!
What is a high interest savings account?
A high interest savings account is exactly what it sounds like - it's a savings account that offers a high interest rate. Why is this important? You're essentially getting FREE money for keeping it in an account. Your money sits there and grows at a faster rate compared to a traditional savings account. This is one of the 5 investment strategies that I recommend for risk averse clients.
How do you open a high interest savings account?
Find a bank that offers it! Most traditional banks like Chase, Citibank, TD Bank, etc do not offer this as an option because they have physical bank locations. Rent is a pretty big expense, especially if the bank has hundreds of locations across the US. Banks that offer high interest savings accounts are online only banks - because they don't have rent, they pass back some of those savings to the customer through higher interest rates. Banks like Ally Financial, Varo and Goldman Sachs' Marcus offer high interest savings accounts for clients. There are other options as well, so make sure you do your research to find which one is the best one for you.
How do you know if a savings account is offering a high interest rate?
Traditional banks offer interest rates of around .01%. Anything around .4% or higher is considered a high interest savings rate. Since interest rates change from time to time, there are times that the savings interest rate offered may be higher. A few years ago in 2019, when I opened up my high interest savings account, the interest rate at the time was closer to 1.5% compared to the .5% that I am getting right now. Since the Fed plans on hiking interest rates next month, there is a good chance that banks will also adjust their savings rate higher than what they are offering now. This is the best time to start saving!
Can I open up a high interest savings account for my business?
Yes! You have the option of opening a personal or a business high interest savings account. Not all the same banks will offer both a high interest personal and business savings accounts. Live Oak Bank and First Internet Bank are examples of online banks that offer high interest business savings accounts. Again, there are many other options to choose from so make sure you do some research before selecting one.
Tips for how to maximize your high interest savings account
Tip #1: Only keep up to $250,000 in your savings account.
Most bank accounts are FDIC insured up to $250,000, which pretty much means that if the bank fails for any reason, you will be covered for up to $250,000 in your account. If you have more than that in an account, make sure to deposit that money in other areas (like what we mentioned above) or create another high-interest savings account with another bank to protect yourself.
Tip #2: Set automatic transfers to your savings account
You've probably heard the phrase, "pay yourself first." You can do just that by setting up automatic transfers! Schedule those in advance based on when you get paid and what amount you want to save. If you don't know how much you typically save per month, purchase my annual & monthly budgeting spreadsheet to find out and to help you save more each month. By adding more into your account each month or each paycheck, you will compound the growth of your savings account.
For more tips and a personalized strategy plan, book a 1 hour personal finance session where we will talk about your financial goals and develop a roadmap of how to get there.