High Interest Savings Accounts: Compare Top Savings Rates

What Are High Interest Savings Accounts

These types of savings accounts are just what they sound like: deposit accounts with better interest rates. All savings account interest rates use the Fed Funds Rate as a guide. This is an interest rate, set by the Federal Reserve, that provides a benchmark that banks can use when they lend money to each other overnight. Banks have to pay interest to each other, and they have to pay interest to you on your deposit account. However, banks also loan money out.
The key is to loan money out at a rate that is high enough that they can offset the costs they incur by paying you interest (and maintaining your account) and paying interest to other banks. Since banks can decide how much interest you are paid, they often set the rates on savings accounts rather low. Some banks, though, are willing to provide a higher rate in exchange for having more money on deposit. They still make money, but the amount they make isn’t as much as it could be.
One of the complaints that many have with savings accounts is that the interest rates are so low. Indeed, many realize that they are earning less than 0.5%. This is because in a climate of low interest rates, savings account rates are quite low as well. Even during the best of times, traditional savings accounts rarely get higher than 2%. If you are looking for a savings account with a higher yield, you can look into high interest savings accounts.

Requirements of High Interest Savings Accounts

Some high interest savings accounts have no minimums to meet. You can have a balance of $1 and still pay no fees. Other high interest savings accounts, though, have requirements. If you want the better interest rate, you have to be willing to maintain a minimum balance in your account. Make sure you read the fine print, since some banks will charge a fee if you fall below the minimum. That can easily offset your interest earnings. Other banks simply pay you one rate when you are above a certain deposit amount, and pay another rate when you fall below.

You should realize, though, that every bank will limit the number of withdrawals you can take. Regulation D from the Fed specifics the types of transactions that count as withdrawals, and limits these to no more than six per month. Banks, if they wish, can limit you to a few number. Many banks offering high yield savings accounts will limit you to three or four withdrawals a month. If you exceed the three or four, you will be charged a fee. If you go beyond six withdrawals a month, the Fed requires that your account be converted to a different type of account – or closed.

Using a high interest savings account can be quite helpful. It can be a good way to make the most of your emergency fund, or keep some money safe (as long as it is in an account insured by the FDIC). However, you need to make sure you understand the limitations and requirements that come with such an account.