High Interest Savings Account – Why You Need One


You need a high-interest savings account. Yes, need.

Let me explain why.

The other day I had a dream that I was lost and wandering through a jungle. It was one of those dreams where I was seeing myself in the third person as if I was in a movie. Except instead of jumping from tree to tree like Tarzan I was terrified that I wouldn’t be able to find my family. The jungle was swelteringly hot and humid. For some reason, I was barefoot and it looked my feet were getting battered by the raw terrain.

Out of the corner of my eye, I noticed that there was a shiny canister in the distance. As I approached I realized it was actually a phone. Finally, I would be able to call my wife and call for help.

But that’s not what happened. I just looked at the phone and unsure of how to use it, I just left it there on the ground. I was horrified as I watched myself walk away from the phone in my dream. Sadly, I didn’t even spend two minutes to try to see how it worked. In the dream, I kept trying to scream to myself to walk back and call for help. I woke up sweating and glad it was just a nightmare.

Is that something you would do? Would you walk away from the phone instead of using it to call for help? I woke up before anything happened to me, but let’s just say I don’t think anything good was going to happen.

Humans Have A Tendency To Favor Convenience Over Efficiency

As I reflected on it, I realized that the dream I had was a perfect metaphor for so many of the decisions we make as human beings. We’ve been essentially hard-wired to optimize for convenience instead of efficiency.

This leads us to make decisions that are actually not in our own best interest. How does this tie into high interest savings accounts or getting a high interest rate? Well, most people I speak with who have a decent amount of money saved up either keep it in their checking account or standard savings account.

When I asked them if they are aware that high yield savings accounts pay much higher interest rates they usually say yes. In one extreme example, a close friend confided that they had $200,000 sitting in their checking account. They didn’t know how to start investing their money so it just sat there for years.

Let’s just say that I walked them through the process of opening a high interest savings account and an investment account.

If you don’t have a high-interest savings account, you need to stop what you are doing and open one. You can quickly open an online savings account that offers competitive interest rates in minutes. CIT Bank is a perfect example of a solid option for a high interest account.

BankAPY %Minimum Deposit
cit bank logo0.45%$100
citibank logo0.3%$0
Ally bank logo0.4%$0
Marcus by Goldman Sachs logo0.25%$0
capital one logo0.15%$0
American express logo0.15%$1
Updated: 6/29/2020

What Is A High Interest Savings Account, Anyway?

A high-interest savings account is a deposit account offered by a financial institution that offers a higher interest rate than a traditional savings account. Yup, it’s that simple.

High-interest savings accounts are typically offered by online banks like CIT. These online-only banks use the money they save from not having to have physical local branches to offer interest rates that may be as high as 200+ times greater than what a typical traditional bank is able to offer.

These accounts are essentially the same as standard savings accounts except they have higher savings rates. You can still use them for direct deposit and mobile banking like you normally do. The best accounts also have no monthly maintenance fee, no minimum balance, and a low minimum deposit. If you are a member of a credit union, that is also another place to inquire about a high yield savings account.

Keep in mind that savings accounts cap the number of monthly withdrawals and don’t have a debit card or ATM card so you’ll want to keep a checking account linked to it.

What Is Considered High Interest?

The mega-banks like Chase, Bank of America, and Wells Fargo offer savings accounts that start with super-low interest rates ranging from 0.01% APY to 0.04% APY. APY stands for Annual Percentage Yield and is the effective annual rate of return.

These numbers are extremely low. These mega banks also love charging a monthly fee.

In fact, if you’ve read our article on how to pick investments, you’ll remember that index funds with fees in the 0.04% range are solid choices for their low fees.

However, when it comes to earning interest, you want to find an account with the highest number possible.

To put 0.01% interest into context for you, let’s assume for a second that you’ve built an amazing budget and have been saving and investing for retirement like a champ. In fact, you’ve been able to save up $1,000,000! You’re a millionaire.

So how much interest would that $1 million earn if you put it into a savings account that only earned a savings account rate of 0.01%? $100 per year. A HUNDRED bucks! That’s it. That’s about $8.33 per month in return for letting them hold you million dollars.

You don’t need to be a rocket scientist to know that’s pathetic.

In comparison, the leading high-interest savings accounts are earning at least 1%.

If you think 1% still sounds low, just remember that it’s 100 TIMES larger than 0.01%. In other words, for every $1 you’d earn with a rate of 0.01% APY, you’d earn $100 with a rate of 1%!

And this ignores the effect of compounding which means the difference would only grow over time since you’d be earning interest on the money that you made off of previous interest.

Do you even need more reasons to transition to an online bank?

high interest savings account

How Do You Open A High-Interest Savings Account?

Opening a high-interest savings account is very similar to opening any other kind of savings account, except the process typically has to be completed entirely online. You can open one now at CIT Bank.

You’ll want to fund your account by making an online transfer from an existing checking or savings account. Your new bank will walk you through the process and it’s super easy.

Some banks will have a required minimum balance, while others won’t. The ones we list below have a low minimum balance requirement, a low initial deposit, a high APY, and no account fee.

Which Banks Offer High Interest Savings Accounts?

This list includes some of our favorites.

  • CIT Bank
  • Varo Savings Account
  • Marcus by Goldman Sachs
  • Synchrony Bank
  • Ally Bank

Are High Interest Savings Accounts More Risky Than Traditional Low Interest Savings Accounts?

No! One beautiful thing about the banks offering high-interest savings accounts is that they still play by the rules and regulations of the traditional retail banks.

This means that their accounts are FDIC insured up to $250,000 per depositor. We have both personally had high-interest savings accounts for that past decade and the safety or security of our accounts has never been an issue.

Not even at the height of the financial crisis.

When Is The Right Time To Open A High Yield Savings Account?


But seriously, now is the right time. If you are thinking about it and don’t have a high-interest savings account then you are leaving money on the table.

Unless you’re the kind of person that enjoys feeling parched on a scorching summer day and would walk away from free ice-cold water.

Some of you might be worried that you don’t have very much money, but the awesome news is that several of the banks that offer the highest interest rates have no minimum balances.

How Much More Interest Could I Get From A High Yield Savings Account Compared To A Normal Savings Account?

Let’s face it, this is the reason that you’re even considering opening a high-interest savings account. And when money talks, we listen.

So how much money in interest have you been missing out on if you have a savings account or checking account that earns virtually nothing? Let’s explore an example.

Let’s assume there are two identical people. Perhaps they are twins…

Both start with $250 in the bank. In addition, they are able to deposit and save an additional $250 per month thanks to having an airtight budget. (Use our free monthly budget template)

Ignoring interest, they’ll have $500 saved at the end of month 2, and so on, until they have saved $15,000 by the end of the 5th year. This doesn’t include interest.

The only difference between them is that one of them has a high-interest savings account while the other just has a normal low-interest savings account.

Assume the high-interest savings account earns 2.1% APY compared to 0.01% APY with the traditional low-interest savings account.

How much more does the person with the high-interest savings account have after 5 years? Let’s see.

As you can see in the example above, the person with the high-interest savings account was able to save an extra $811.56.

Not too bad for doing absolutely nothing for it besides switching bank accounts.

The Pros Of High Interest Savings Accounts

The Pros

  • High-interest rates mean you’ll make more money in interest
  • Online-only banks tend to have fewer fees and lower limit requirements
  • Many online banks offer 24/7 customer service via calls or emails
  • Around the clock access via online banking

The Cons

  • No physical branches mean you can’t talk to a specialist in person if you need help
  • It may take a few days to transfer the money to a checking account so that you can withdraw it

Can I Keep All Of My Money In A High Interest Savings Account?

As attractive as it may seem, there’s a reason why you can’t use high yield savings accounts as your primary bank account. The reason is that there is a federal law that limits the number of monthly withdrawals that you can make to 6.

So if you have 6 bills to pay on a monthly basis, or need to transfer money out more than 6 times a month you could run into issues.

Some banks will penalize you with fees if you exceed the 6 monthly withdrawals and may also convert your account to a checking account. Other banks have their own limits, so you’ll want to check first if you plan to use your account pretty actively.

High Interest Savings vs Money Market Accounts

A money market account (MMA) is the child of a savings and checking account. MMAs are structurally almost entirely the same as a savings account, except they typically offer higher interest rates and have high minimum balance requirements.

Since money market accounts also typically have interest rates that are higher than checking or traditional savings accounts, they can be an attractive alternative to high interest savings accounts. The biggest differences are that MMAs are like a hybrid of checking and savings accounts and they typically have pretty high minimum balance requirements.

What Can High Interest Savings Accounts Be Used For?

So if I am limited in the number of withdrawals that I can make on a monthly basis, how should this account be used?

The perfect use for a high-interest savings account is to save money that you won’t need to spend regularly. Do you have an emergency fund yet? These savings accounts can be the perfect place to store money for a rainy day. Or if you are saving up for the down payment on a house or another large purchase.

Remember that ideally, you’ll want to have a savings goal of having 3 to 6 months of living expenses saved for emergencies.

As you can see, switching to a high-interest savings account is a no-brainer. Not sure if your relationship with money is broken? Not having a high-interest savings account may indicate that it is.

Make sure you open your high interest savings account today to have your money start working for you!

No, it won’t solve all of life’s problems. But it’s better than walking right past a free bottle of ice-cold water on a hot summer day. If you’d like to get an even higher interest rate, check out a CD or certificate of deposit!

Looking for even more ways to save or make money?

Consider refinancing your student loans to lower your monthly payment and interest rate. Or download Robinhood or Webull to get a free stock and start investing!

high interest savings account