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The Ultimate Guide to Brokered CDs

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

You may have noticed that brokered certificates of deposit (brokered CDs) are offered as an investing option by your wealth advisor or online investing platform. You may also be enticed by the better interest rates offered by brokered CDs, while also wondering about the extra fees charged for them. What gives?

Like traditional CDs, brokered CDs are interest-bearing accounts that have a set term and yield. But instead of depositing money in a bank’s CD, you purchase brokered CDs through a middleman — your stock broker or financial advisor. These middlemen buy CDs in bulk from banks, negotiate higher rates, and charge extra fees.

Taken together, these factors make investing in the brokered option a different experience than depositing money in traditional CDs. Let’s take a look at the differences and help you understand when buying a brokered CD may give you an investing advantage.

What is a brokered CD?

Think of these CDs as investment products that are more like stocks, bonds or mutual funds than a bank deposit account. They are called “brokered” CDs because investment funds and brokerages purchase CDs from banks, credit unions and thrift institutions, and then resell them to you.

When middlemen buy CDs from banks, they shop around for the best rates and purchase from different sources. In addition, they buy in CDs in bulk. Taken together, these factors let them offer their customers more competitive rates — and some other key advantages — but it’s also why they charge fees for that extra convenience and yield.

Brokered accounts generally credit you with simple interest rates rather than compounding interest. Holders of the brokered option normally get paid simple interest monthly, quarterly, semi-annually or annually. Simple interest is calculated only on the principle you deposit in your brokered CD account. If you invest $10,000 at an interest of 3%, you will earn $300 in interest at the end of the year, and there will be no compounding of that interest at given intervals.

Bank CDs must be held to maturity, and if you withdraw your money early, you’re charged a penalty. Holders of brokered CDs can resell them on the secondary market before maturity. Like with other fixed-income investments, the market value of these CDs fluctuates as interest rates rise and fall. If interest rates are higher, holders will see a net loss if they sell early, but then again they can end up with a net profit if rates fall.

Like traditional CDs, brokered CDs are covered by FDIC insurance up to $250,000 per account, per institution. This gives them a huge advantage over speculative investments: You’re guaranteed to get your money back. If you’d like to invest more than $250,000 and maintain FDIC insurance, you can distribute your money among different brokered CD issues sold by the same middleman, as long as you keep each deposit under the $250,000 FDIC limit per bank.

Who buys brokered CDs?

The conventional wisdom is that individual savers tend to buy traditional CDs, while bigger institutional investors tend to buy the brokered option, with the former investing smaller amounts and the latter moving large amounts of money in and out of these brokered accounts as broader markets rise and fall.

But Ken Tumin, founder and editor of DepositAccounts.com, another LendingTree-owned site, said that individual investors have more and more options for buying brokered CDs.

“For example, at Fidelity, brokered CDs can be purchased with a minimum deposit of $1,000,” Tumin said. “There are actually lots of advantages for investors to use brokered CDs instead of direct CDs, especially inside IRAs.”

Many experienced investors say that buying these CDs via online investment platforms simplifies the process of managing their CD investments, especially redeploying balances once the CDs mature. Handled properly, it can be a more convenient strategy than opening traditional CD account that are separate from your online brokerage account.

Benefits of brokered CDs

  • Simpler access to a wider variety of CDs. If you choose to buy new-issue CDs directly from banks, it can be complicated to compare and evaluate offers from different institutions. If you purchase these CDs through a middleman, you can quickly and easily select CDs of different terms from a variety of issuers in different states.
  • You don’t have to pay an early-withdraw fee if you sell your brokered CD early. You would have to lose some interest earnings with a traditional CD if you withdraw your funds prematurely. But the brokered option can be sold before maturity on the secondary market.
  • Brokered CDs may bear higher rates. Rates on these brokered accounts are often more sensitive to ups and downs of Treasury yields than traditional CDs are. When Treasury yields are rising, the rates offered on the brokered accounts are higher than those for traditional CDs of like maturity. But there’s no guarantee.

Risks with brokered CDs

  • You may lose money from selling your brokered CD prior to maturity. In an ideal situation, you want to keep your CD, brokered or traditional, until maturity. But if you have to sell your brokered CD before maturity in a rising interest environment, the demand for these CDs falls on the secondary market, and so you may have to sell your CD for less than you paid.
  • Some brokered CDs are callable. This means the bank has the option to “call”, or redeem it prior to maturity at a given price, as stated in the CD contract’s terms. If rates slide after you buy your CD, then the bank will exercise the call option. And then you may have to reinvest the money at a lower rate if you want to invest in a fixed-income instrument.
  • Suspiciously high rates may be a scam. Unscrupulous brokers of advertising above-market CD rates to attract people. Never fall for high rates without doing research on the broker, you can be exposed to the risk of losing money to fraud.

Brokered CDs vs. traditional CDs

All CDs are issued by banks. You purchase traditional CDs from banks directly. But the brokered accounts are purchased by brokerages in bulk from one bank and then resell them to retail investors.

 

Brokered CDs

Traditional CDs

Issuer

Banks

Banks

Interest

Simple interest

Compounding interest

Complexity

High

Low

Fees

Intermediary fee

Early withdrawal fee

For traditional CDs, interest is calculated on a compounded basis, while simple interest is applied to brokered CDs. If you deposit the same amount of money for the same period of time, in general, you will earn more in interest if it’s calculated on a compounded basis than if it’s simple interest.

The brokered options are more complicated and riskier than traditional CDs. The brokered accounts are more sensitive to market interest rates. You may lose money if you sell your CD before it matures because the value can slump due to rising interest rates, and longer maturities have higher interest rate risk.

You can incur early withdrawal penalties if you choose to close a traditional CD prior to maturity. In general, the longer the CD term, the bigger the early withdrawal penalty you may have to pay.

If you buy a CD through a middleman, such as a brokerage or your financial advisor, you may have to pay a fee, and there also is a transaction fee when you sell your CD. Sometimes the costs are worth it if they provide you with CDs that bear higher interest than that of traditional CDs. But that’s not always the case.

It makes sense to buy a brokered account when the interest is greater than the yield on Treasury bonds with a similar duration. In addition, unlike traditional bank CDs that pay your interest at maturity, some brokered accounts offer the flexibility of periodic payments. You can be paid monthly, quarterly, annually, or at maturity.

Making the right CD choice

Compare rates for traditional CDs and brokered CDs. In general, you go for the most competitive rates possible. But you should also factor in the minimum deposit, the payment period and potential costs associated with each CD.

If you are more of a risk taker who prefers the flexibility of closing a CD at any time, then the brokered option is for you. Likewise, if you have lots of money to invest in a deposit account and don’t want to be subject to the $250,000 FDIC-insured limit, the brokered option is the way to go.

But if you plan to invest your funds for a long term and don’t want to handle the complexity and risk associated with a brokered CD, then you will be better off with a traditional CD.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Banking

Where Should You Put Your Emergency Fund?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

There are three key factors to consider when deciding where to keep your emergency fund: yield, liquidity and cost. Choosing a deposit account to hold your emergency fund that strikes a balance between these elements can help you maximize your savings and provide easy access to the money when an emergency strikes.

Emergency fund basics

An emergency fund is a cushion that protects you against major financial shocks. It’s not for paying regular expenses or even small, unplanned costs. As the name suggests, it’s for emergencies — things like unemployment or major, unexpected medical costs.

Your emergency fund exists to prevent you from having to take on expensive debt when faced with large, unexpected expenses. Whatever type of deposit account you choose for you emergency fund, it needs to provide easy access, a decent return on your money and zero extra costs:

  • Yield: Choose an account with a high interest rate that provides you with a decent rate of return on your money. Keep in mind that your emergency fund isn’t an investment — it’s an insurance policy.
  • Liquidity: You should keep the money in a relatively liquid account so that you can draw from it in an emergency. Highly liquid accounts give you immediate access at no cost, whereas less liquid ones take time to free up funds.
  • Cost: Any extra costs eat into your fund and diminish your returns. Choose an account with zero maintenance fees to help preserve your funds.

How much do you need in your emergency fund? A good rule of thumb is to put away the equivalent of three to six months of living expenses.

Keep your emergency fund in a high-yield savings account

A high-yield online savings account is a great option for your emergency fund. Online banks lack branch locations, which helps lower their overhead costs. This helps them offer higher APYs and lower fees than traditional financial institutions.

Online savings accounts offer varying levels of access to your money. Some offer debit cards and even checks, which let you make payments without delay. Others limit your ability to deposit and withdraw funds to ACH transfers. You can deposit money in many online savings accounts via mobile check deposits, ACH transfers or wire transfers from other accounts. Read the fine print when evaluating an online savings account to ensure you know what your deposit and withdrawal options are.

In addition, savings accounts also limit certain types of telephone and electronic withdrawals, including transfers from savings accounts up to 6 per statement cycle under Federal Reserve’s Regulation D (Reg D). You may be subject to a fee or having your savings account closed or converted into a checking account if you make excessive withdrawals.

Savings account advantages for your emergency fund

  • High APYs: High-yield online savings accounts offer competitive interest rates, which can boost your emergency fund. It’s not uncommon to earn at least 1.70% APY on your balance.
  • No fees: Don’t want monthly maintenance fees or excessive transaction fees to chip away at your fund? There are many high-yield online savings accounts that come with no fees.
  • Low to no minimum balance requirements: Many online savings accounts don’t require their customers to keep a minimum balance, which could be a benefit to people who are just getting their emergency fund started.

Keep your emergency fund in a money market account

A money market account could be a good option for your emergency fund, especially if you’ve already built a sizable balance. You can sometimes find higher APYs on money market accounts than other deposit accounts at conventional banks. However, you may need to maintain a substantial minimum balance to earn interest.

Money market accounts come with a debit card and checks more often than not. This extra degree of access makes it easier to withdraw money and cover emergency expenses on the fly.

Keep in mind that like savings accounts, money market accounts are also subject to Reg D, which limits certain types of telephone and electronic withdrawals, including transfers from savings accounts up to 6 per statement cycle. Factor in any potential monthly maintenance fees and excessive withdrawal fees as you evaluate whether a money market account is the best place for your emergency fund.

Money market account advantages for your emergency fund

  • Easy access to money: The checks and debit cards that come with most money market accounts provide convenient access to your emergency fund.
  • High APYs: Like high-yield online savings accounts, money market funds offer high interest rates.

Keep your emergency fund in a cash management account

Cash management accounts combine some of the best features of both checking and savings accounts, and could be a great choice for your emergency fund. Cash management accounts typically offer competitive interest rates and accessibility that rivals regular checking accounts.

Fintech firms like Wealthfront, SoFi and Betterment offer cash management accounts. Some combine the functionality of savings and checking accounts, while others offer separate savings- and checking-like accounts. Some function more like high-yield checking accounts, with fewer requirements than conventional deposit accounts.

If you’re thinking about keeping your emergency fund in a cash management account, you need to pay close attention to the available features, which can vary widely. Some cash management accounts don’t offer the ability for customers to spend their money with a check or debit card, which could make it tricky to access your emergency fund on a moment’s notice. You may need to transfer the money to a third-party account before you can use it.

Cash management account advantages for your emergency fund

  • Easy access: Many cash management accounts offer debit cards with few to no withdrawal limits. However, some do not — so you need to do your homework before choosing.
  • High interest rates: Many cash management accounts offer APYs that rival the rates of high-yield savings accounts and the best money market accounts.
  • No fees: Few cash management accounts charge monthly maintenance fees that would eat into your emergency fund.

Keep your emergency fund in a no-penalty CD

Certificates of deposit (CDs) pay competitive rates, but in exchange, you agree to leave your money untouched in an account for a set term, such as 12 months. If you withdraw the balance before the end of the term, you are charged an early withdrawal fee equal to some or all of your earned interest. This limitation prevents CDs from being the best place to keep your emergency fund.

Even if you use a CD ladder — a series of CDs that expire at predictable intervals, giving you great rates and slightly better liquidity than single CDs — you still might be facing early withdrawal fees when an emergency hits and you need access to your money.

There is a special kind of certificate of deposit, called a no-penalty CD, that is a potential option for an emergency fund. No-penalty CDs offer good interest rates and don’t charge the early withdrawal penalties that characterize standard CDs.

These accounts usually come with other rules, though. If you need to dip into the account, you may be required to withdraw the full amount — even if you only need a portion of the money. Some no-penalty CDs allow for a fixed number of partial withdrawals and may charge you a fee if you exceed the limit. You generally can’t touch the money at all until seven days after you fund the CD. Most (if not all) no-penalty CDs come with minimum balance requirements.

Advantages of no-penalty CDs for an emergency fund

  • Good, not great, APYs: Some no-penalty CDs offer competitive APYs, but the highest rates are typically reserved for accounts with longer terms and/or higher balances.
  • No early withdrawal fees: Unlike conventional CDs, no-penalty CDs don’t punish you with a fee if you need to take out the money before the term is up.
  • Wide availability: Whether you’re an online banking devotee or you prefer the in-person experience at a branch, you can find no-penalty CDs at financial institutions nationwide.

Save your emergency fund in a Roth IRA

When thinking about where to store your emergency fund, a Roth IRA might not be the first thing that comes to mind. It’s a retirement investment account, after all. However, Roth IRAs come with some special advantages that make them a potential place you can pull money from in an emergency.

Roth IRAs are funded with after-tax dollars, and you can withdraw the contributions you’ve made at any time you want, without paying a penalty. The earnings, on the other hand, are subject to a 10% withdrawal penalty if you take them out before age 59 1/2 or before the account is five years old.

There are some exceptions to these rules, which can be helpful to know if you’re using a Roth IRA for your emergency fund. You can make early withdrawals without penalty if you lose your job, you need to cover health insurance or medical expenses, you become disabled or you’re buying your first home. You will need to pay tax on the earnings, though.

If you do need to use retirement funds to cover a major emergency, the money in your Roth IRA may come with fewer tax implications than the funds in other types of retirement accounts, like a traditional IRA.

Keep in mind that using retirement funds for something other than their intended purpose could set you back on your long-term savings goals. Try to have another dedicated emergency fund that you can access for unexpected expenses.

Advantages of a Roth IRA for your emergency fund

  • Potential for high returns: Contributions to a Roth IRA can be invested in a wide variety of different asset classes. Pick favorable investments, and your returns could be much greater than would be possible in any deposit account. Of course, poor investment decisions or market downturns could also lead to negative returns.
  • Penalty-free withdrawals: The money you contribute to a Roth IRA can be withdrawn without taxes or penalties under certain conditions.
  • Tax-free earnings: You can spend the earnings from your Roth IRA after age 59 1/2 without paying taxes, as long as the account is at least five years old.

Do not keep your emergency fund in stocks, ETFs or mutual funds

It might be tempting to try to grow your emergency fund by investing in the market via a brokerage account or a robo-advisor. But you might want to think twice about the downsides and potential risks involved in that strategy.

The biggest risk of investing your emergency fund is that its value could decline. Remember, your emergency fund is not an investment — it’s an insurance policy against rare but devastating emergencies. It’s a sum of money you need to be able to count on to provide peace of mind. After you’ve topped up an emergency fund, start investing other funds in a brokerage account.

You can’t predict when you’ll need the money saved in an emergency fund. In a true emergency, you would need to sell your stocks, ETFs or mutual funds — possibly at an unfavorable time, possibly for a loss. It all depends on how the market is performing.

Even if you do sell an investment for a favorable return, you will need to pay capital gains taxes on the earnings. While more favorable than typical income tax rates, the capital gains tax rate could still chip away at the overall amount you have at your disposal for an emergency. Worse yet, you may be subject to a higher tax rate if you don’t hang onto the assets for more than a year.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Banking

Best Savings Accounts

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Interest rates on savings accounts vary greatly, which means you need to shop around to find your best rate available. It’s possible to find rates reaching well past 2%, while the average savings account rate stands at around 0.27% (as of February 2020). This is why we check rates daily at more than 5,000 U.S. banks and credit unions, to make it easy for you to gain the best possible return on your savings.

A savings account is a key component of everyone’s financial life, but everybody needs something a little different from their savings account. That might mean you want to maximize your interest earnings, while others might need easy branch access. For that reason, we’ve outlined the best savings accounts in several different categories to better help you find the right one for your preferences.

So whether you’re shopping around for a new savings account or you need to open one for the first time, this comprehensive guide should help you get started. Below, you’ll find the best savings accounts to choose from, and a full brief on every aspect of selecting the right account for your needs.

Rates are accurate as of February 12, 2020

Best Savings Account Rates from Top Online Banks

Some people really put an emphasis on banking with a well-known, dependable bank that offers high rates and great features. For this reason, we’ve compiled a list of the big online banks that have had competitive rates for two consecutive years and either don’t require a minimum deposit amount or have a low minimum deposit amount requirement.

1. Barclays – 1.70% APY, no minimum deposit to open account

Barclays

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Member FDIC

Barclays originated in London over 300 years ago. In 1965, Barclays incorporated Barclays Bank in California, and in 1971, incorporated Barclays Bank of New York, where its Wealth unit is now based. While the bank has a presence in several U.S. cities, it settled its headquarters in Wilmington, Del. in 2001, where the online business currently resides.

While Barclays had been predominantly making a name for itself in the credit card space, the bank launched its online savings account in 2012 with a fairly competitive rate. Since its launch, the bank has remained consistent with its rate and even decided to up its game in March 2019 to compete with the other online banks. Today, Barclays holds on to a 1.70% APY, and doesn’t require a minimum amount to open the account or a balance to earn that APY.

You can fund the account by transferring funds via ACH, setting up direct deposit, mailing a check or uploading a picture of a check via the bank’s Deposit Checks feature. Be aware that Barclays may hold your deposited funds for up to five business days if deposited by check or electronically. If you fund the account via ACH or transfer from another bank, the funds will be available immediately. The maximum amount that you can withdraw or deposit is $250,000 per transaction.

If having the ability to bank at the palm of your hand is important to you, you’ll be happy to know that Barclays has a mobile app.

2. American Express National Bank – 1.70% APY, no minimum deposit amount

American Express National Bank

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Member FDIC

While this institution was established in 1989, American Express National Bank can trace its roots back to 1850 when its parent company, American Express, was originally founded. Not unlike Barclays, American Express is widely known for its credit card products.

With our sponsored advertiser, American Express National Bank, you can also open deposit accounts like its Personal Savings Account. Luckily for banking customers, the account historically offers good rates that consistently land it in top rankings. Today, you can take advantage of its 1.70% variable Annual Percentage Yield (APY) with any deposit amount. The account doesn’t charge a monthly fee, nor any fees for wires or to deposit checks.

This high yield savings account does not come with an ATM/debit card or checks. You can deposit money by mailing a check and make online transfers to and from your account. When pulling funds from your external bank, it will take five business days to appear in your account when you initiate the transfer from your Personal Savings account, and one to three when you initiate through your external account. Sending funds from your Personal Savings Account will take one to three business days no matter which side you initiate from. American Express Personal Savings is accessible online only; it does not have a mobile app.

3. Goldman Sachs Bank USA – 1.70% APY, no minimum deposit to open account

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Marcus by Goldman Sachs® is a brand of Goldman Sachs Bank USA that powers the bank’s online savings accounts, as well as its personal loans. Marcus launched its online savings account in 2016 with a competitive rate (at the time). While savings rates have fluctuated, continue to do so, this online brand has continued to offer a consistently competitive rate on its savings account. Today, the bank is offering a 1.70% APY. There isn’t a minimum deposit amount or balance requirement to earn the APY — plus, this account doesn’t come with any monthly fees either.

You can easily fund the account by either transferring your funds directly from a linked external bank account, setting up direct deposit, sending a check or sending a domestic wire transfer. While you can deposit as much as $1 million per account, you’ll only be able to transfer a maximum of $125,000 per outgoing transfer when initiated online. Marcus does give you the option to call its customer service number if you need to withdraw more than that amount. Keep in mind that you’ll be limited to making six certain withdrawals or transfers per statement period.

One downside to this online-only bank is that it doesn’t currently have a mobile app that allows you to conduct transfers, so you’ll have to conduct transfers on Marcus’ website. However, the online bank did join forces with Clarity Money, a personal finance app from Goldman Sachs Bank USA. Through Clarity Money, you’ll be able to monitor your account and manage your finances in a simple way.

4. Capital One — 1.70% APY, no minimum deposit to open account

Capital One

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Turn to Capital One 360 for Capital One Bank’s more competitive rates. As an online-only operation, Capital One 360 accounts provide savers with higher deposit rates for better savings. They’re not just a flash in the pan either; Capital One remains one of our top picks for their consistently competitive rates.

The Capital One 360 Performance Savings earns a 1.70% APY on all balances. There’s no monthly fee, so your savings can grow in peace without the bank taking out a chunk. You can open the account with any deposit amount that works for you, as there is no minimum deposit nor balance requirement.

Capital One 360 accounts can be managed easily online, on the bank’s mobile app or at a Capital One Cafe or branch.

5. Discover Bank – 1.60% APY, no minimum deposit to open account

Discover Bank

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Member FDIC

Known for its credit cards, Discover’s first card was first used in 1985. In that same year, Discover acquired Greenwood Trust Company, which officially changed its name to Discover Bank in 2000. Today, you can find several online banking products from Discover Bank, including certificates of deposit and a cashback checking account.

Dip into Discover Bank’s deposit offerings with its competitive Online Savings Account. There’s no minimum to open the account or start earning its 1.60% APY. Plus, interest is compounded daily and paid monthly for faster earnings. Discover also promises no fees so you can avoid fees on items like monthly maintenance, checks, returned deposited items, excessive withdrawals and insufficient funds.

Discover Bank is accessible solely online, which includes its mobile app, available both in the Apple App Store and Google Play. Its mobile app offers check deposit.

Best Rates from New Online Savings Accounts

Over the last year or so, there have been several new online banks being created by bigger banks or big banks introducing new online savings options. This list includes those banks that have either launched within the last two years or introduced a brand-new savings account with consistently high rates within the last two years.

1. North American Savings Bank (NASB) — 1.97% APY, $50,000 minimum deposit to earn APY

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Member FDIC

Founded in 1927, North American Savings Bank is headquartered in Kansas City, Mo. It is a full-service bank with a range of deposit and lending products. You can find NASB locations in the Kansas City area.

NASB’s High Rate Savings account reserves its 1.97% APY for high balances between $50,000 and $5 million. Any balance outside of that range that will earn 0.10% APY instead. Whatever your balance, NASB guarantees your rate for six months after opening. You’ll need at least $50,000 to open the account. There is no monthly fee to worry about, and you will have to enroll in E-Statements.

You can access your account online, over the phone and through Mobile Banking, which includes Mobile Check Deposit.

2. Vio Bank – 1.85% APY, $100 minimum deposit to open account

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Member FDIC

Vio Bank is an online division of MidFirst Bank which was founded in 1911.

Vio Bank has certainly been a recent stand-out candidate for its competitively high rates on its CDs as well as its High Yield Online Savings Account. It currently earns 1.85% APY and compounds interest daily for better savings. Plus, there’s no monthly fee. You will need at least $100 to open the account. It’s better to stick to electronic statements here, because paper statements cost $7 each.

Vio Bank doesn’t provide debit cards or check writing capabilities on its High Yield Online Savings Account or any other accounts. Instead, you’ll have to make online ACH transfers. Deposits into the account may take five or more business days. You’re limited to $25,000 daily and $100,000 monthly on transfers to and from external accounts initiated by Vio Bank. There aren’t any limits on transfers initiated outside, though. You can fund your High Yield Online Savings Account by mailing a check, depositing a check on mobile or sending an incoming wire.
In addition to its online presence, Vio Bank extends itself to a mobile app, as well, which allows you to manage your accounts and make transfers on the go. It is available in the Apple App Store and Google Play Store.

3. CIBC USA – 1.85% APY, $1,000 minimum deposit to open account

CIBC USA

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Member FDIC

CIBC, or Canadian Imperial Bank of Commerce, began as two Toronto-based banks: The Canadian Bank of Commerce (founded in 1867) and the Imperial Bank of Canada (founded in 1875) — the two banks merged in 1961. CIBC expanded into the U.S. in 1991 with CIBC U.S., and established its headquarters in Chicago. You can find CIBC USA locations in Illinois, Michigan, Missouri and Wisconsin.

The online-only CIBC Agility™ Online Savings Account offers a competitive 1.85% APY on all balances, although you’ll need at least $1,000 to open an account and get started. It does not charge a monthly fee, so your savings can keep growing uninterrupted.

To withdraw funds from your account, you can make transfers between accounts (both internal and external) or submit a request in writing for a check to be issued in your name. To deposit money, you can also make ACH transfers or send a cashier’s or personal check to CIBC USA in either the bank’s name or your name. Check deposits are placed on a 10-day hold.

In addition to online account access with CIBC NetBanking, you’ll also have further on-the-go access with the CIBC US Mobile Banking App.

4. HSBC Direct – 1.85% APY, $1 minimum deposit to open account

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Member FDIC

HSBC Direct is the online-only offering from HSBC Bank USA, which traces its history back to the Hongkong and Shanghai Banking Corporation Limited in 1865. As part of HSBC Bank USA, the HSBC Direct Savings account earns a competitive 1.85% APY on all balances. You must open an account with at least $1 in new money, meaning money not already on deposit with HSBC. There is no monthly fee to worry about here.

HSBC Direct provides Money Management Tools that are designed to help you manage your money, set goals and stick to a budget. This includes email alerts for bills, low balances and fees, customizable goals and comparable income and spending.

When you have an HSBC US account, you can pay bills and make transfers and other payments in the Move Money section. Transfers in and out of the account typically take three to five business days to clear. Deposits into the account are limited to $3,000 daily and $5,000 monthly. An ATM or debit card is not included with this account.

Take advantage of the HSBC Mobile Banking App for further accessibility, like mobile check deposit. You can find it in the App Store and Google Play.

5. Citizens Access – 1.85% APY, $5,000 minimum deposit to open account

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Member FDIC

Citizens Access is the online-only branch of Citizens Bank, a Providence, R.I.-based bank founded in 1871.

Unlike its other competitors, Citizens Access has a bit of a higher minimum deposit to open its Online Savings Account, requiring $5,000. If you can meet that threshold, you can start earning at its 1.85% APY, but balances under $5,000 will drop to 0.25% APY. Citizens Access boasts zero fees, including for monthly maintenance.

To make a deposit into the Online Savings Account, you can make an online funds transfer or deposit a check through the mail or mobile check deposit; withdrawals are made in the same ways. When moving money from your Online Savings Account, it can take two to three business days for the funds to post in the external account.

Citizens Access doesn’t have a mobile app, but the website is designed to be easily accessible on mobile, including mobile check deposit capabilities.

Best High-Yield Savings Accounts

If the feature you care about the most is the rate a bank offers on a savings account, this list is for you. These banks are currently offering the highest savings account rates.

1. FitnessBank – 2.20% APY, $100 minimum deposit to open account

FitnessBank

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on FitnessBank’s secure website

Member FDIC

Personal goals often revolve around health and money and Fitness Bank seeks to seamlessly bring those together. Fitness Bank is a division of Affinity Bank, which was founded in 2002.

The Fitness Savings Account earns interest on balances over $100. The exact APY you earn on your Fitness Savings Account depends on your average daily step count which is calculated each month. The top rate of 2.20% APY is reserved for customers who log 12,500 steps or more. The rate drops to 2.00% APY for an average daily step count between 10,000 to 12,499; to 1.75% APY for 7,500 to 9,999 steps; and to 1.25% APY for 5,000 to 7,499 steps. Finally, the rate plummets to 0.50% APY if you’re logging 4,999 or fewer steps. When you open a new account and have at least $100, the account will have an initial APY of 2.20% until the rate adjustment date after the first full month.

You need at least $100 to open a new Fitness Savings Account. You must also maintain a $100 minimum average daily balance in order to waive the $10 maintenance fee. There is no fee for incoming wires. You can deposit money into your account through online transfers, which typically take three to five days to post.

To track your steps, you will need to download the FitnessBank Step Tracker app. Then you can link it with your Garmin, FitBit, Apple Health or Google Play.

2. Elements Financial — 2.10% APY, $2,500 minimum deposit

Elements Financial

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NCUA Insured

Elements Financial is a credit union founded in 1930 by the management of Eli Lilly and Company. Today, membership is open to employees of more than 140 partner organizations in the U.S., as well as family and household members of eligible members.

New Elements Financial customers can open a new Helium Savings account to snag its 1-Year Promo 2.10% APY on balances of $2,500 and over (maximum $250,000). After you’ve had the account for 12 statement cycles, your money will grow at 1.30% APY (as of writing). Your opening deposit must be made with new money not already held with Elements Financial. There’s no monthly maintenance fee on the account.

3. BrioDirect – 2.00% APY, $25 minimum deposit to open account

BrioDirect

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FDIC Insured

For the next best high-yield savings rate, head to BrioDirect which doesn’t require any physical commitment from you. BrioDirect is an online brand of Sterling National Bank, founded in 1888, which manages and holds your accounts.

Open a BrioDirect High-Yield Savings account with just $25 to start. You’ll also need to maintain at least $25 in the account to earn the 2.00% APY. There is no monthly fee and the only other posted fees are a $10 excessive transaction charge and a $35 overdraft/insufficient funds fee.

You can transfer money between your BrioDirect savings account and other accounts using the bank’s External Transfers feature online or by calling the bank. You can also fund the account by wiring the money or sending a check. There isn’t a BrioDirect-branded mobile app, but you can use Sterling’s Personal Mobile Banking app to manage your accounts.

4. First Foundation Bank — 2.00% APY, $1,000 minimum

First Foundation Bank

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Member FDIC

Founded in 1990, First Foundation Bank is headquartered in Irvine, Ca. and has 20 locations in California, Hawaii and Nevada.

First Foundation Bank’s Online Savings account sets itself apart from the bank’s other offerings with its competitive 2.00% APY on balances $1,000 and over. Balances under that earn 1.00% APY. You’ll need to open a new account with at least $1,000 in new money, or money not already held on deposit with the bank.

You can access your Online Savings account online and on mobile to pay bills, deposit checks, transfer money and more.

5. Prime Alliance Bank — 1.96% APY, $10,000 minimum balance to earn APY

Prime Alliance Bank

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Member FDIC

Prime Alliance Bank was founded in 2004 and is headquartered in Woods Cross, Utah. This is its one location that you can bank at, otherwise reachable over the phone, email and fax.

Prime Alliance Bank’s Personal Savings account earns its competitive 1.96% APY on balances $10,000 and over. Balances between $1 and $9,999 will earn 1.86% instead, which is still a solid rate at which to grow your money. There is no monthly fee on the account.

You can access your account online and on mobile, where you can use Mobile Deposit to deposit checks remotely.

Best Savings Account Bonus Offers

Some banks offer cash bonuses to bring in new customers. There are often requirements that need to be met in order to qualify for these bonuses, so you’ll want to pay attention to those prior to applying. This list includes banks offer bonuses for opening a savings account.

1. Discover – $200 bonus with $25,000 minimum deposit + 1.60% APY on all balances

Discover Bank

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Member FDIC

Largely known for its credit cards, Discover also offers an array of high-yield deposit accounts. With roots as the Greenwood Trust Company, founded in 1911, Discover Bank came into being by name in 2000.

You have until January 6, 2020 to open a new Discover Online Savings Account and redeem this bonus offer. If you deposit at least $15,000 into the new account by Jan. 20, 2020, you’ll earn a $150 bonus. Deposit at least $25,000 by the same date, and you’ll earn a $200 bonus. If you qualify, the bonus will be deposited by Feb. 3, 2020. You can apply online or by phone using the code MM1219.

The account itself earns at a solid 1.60% APY, and interest is compounded daily. There are no minimum deposit or balance requirements or a monthly fee.

2. Citibank – $700 bonus with $50,000 minimum deposit

Citi

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Member FDIC

Citibank got its start way back in 1812 as the City Bank of New York. Part of the larger Citigroup, Citibank offers customers deposit, lending and investing products for both individuals and businesses. Citi has a physical presence in 98 countries, including in 12 U.S. states plus Washington D.C. Citibank’s headquarters are located in Sioux Falls, S.D.

You have until March 21, 2020 to snag this huge $700 bonus offer from Citibank. To earn the bonus, open a Citi Priority Account Package and deposit at least $50,000 in new money within 30 days of opening the new account. New money means the funds must be held outside of Citibank to qualify. You must maintain at least $50,000 between the checking and savings accounts in the Package for 60 consecutive calendar days to qualify.

The Citi Priority Account Package charges a $30 monthly fee, which you can waive by keeping a combined average monthly balance of $50,000 or more in eligible linked accounts. As a premium account, the Citi Priority Account Package includes access to Citi Personal Wealth Management, relationship rates, free and unlimited checks and more. Its Interest Checking account earns 0.03% APY and the Citi Savings account earns between 0.04% and 0.15% APY, depending on your balance. Higher balances earn higher rates.

3. Citibank – Up to $500 bonus with $15,000 minimum deposit

Citi

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Member FDIC

Based in Sioux Falls, S.D., Citi traces its history back to New York City in 1812. Snag a $400 reward from Citibank by being a new customer and opening a Citibank Account Package by March 31, 2020. Deposit at least $15,000 in either the checking or savings account within the package within 30 days of opening the account. The money must be new to Citibank and kept across both accounts for 60 days. Add an extra $100 to your reward by making at least one qualifying direct deposit each month for two consecutive months within 60 days of account opening for a total bonus of $500.

The Citibank Account package includes both the checking and savings account. There is a $25 monthly fee which you can waive with a $10,000 minimum balance across both accounts. The checking account earns a 0.01% APY, and the savings account will earn between 0.04% and 0.13%, depending on your balance. Citibank offers a mobile app to access your accounts.

4. Associated Bank — $400 bonus with $25,100 minimum deposit

Associated Bank, NA

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Member FDIC

Associated Bank was founded in 1970 when three Northeast Wisconsin banks merged. It is headquartered in Green Bay, Wisc.

Earn a $400 bonus when you open both an Associated Choice Checking account and an Associated Relationship Savings account by June 30, 2020. Open the Choice Checking account with at least $100. You must also make three payments through Associated Bank Online Bill Pay or at least one direct deposit of $300 or more within 45 days of account opening. Open the savings account with at least $25,000. You must maintain a $25,000 minimum combined balance between the two accounts for 90 days to receive the reward 120 days after account opening.

Email yourself a coupon code from the offer page to bring into a branch to redeem. Your new accounts must be funded with new money not already held with Associated Bank. Associated Bank employees and customers who already have or have had a checking account or Associated Relationship Savings account at Associated Bank within the last six months are not eligible for the offer.

The Associated Choice Checking account earns between 0.01% and 0.02% APY, where higher balances earn higher rates. There is a $25 monthly fee, which you can waive with at least $10,000 in combined deposit accounts or either an HSA or investment account. The Associated Relationship Savings account earns according to balance tiers, between 0.10% and 1.30% APY.

5. Chase – Up to $350 bonus with $10,000 minimum deposit and direct deposit in a qualifying checking account

Chase Bank

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Member FDIC

Established way back in 1824, Chase is headquartered in Columbus, Ohio. It has a presence in 33 states and Washington D.C.

Another checking and savings mix-and-match bonus, you have until April 20, 2020 to open a new Chase Total Checking account. Once it’s open, setting up direct deposit will snag you a $200 bonus. Earn another $150 when you open a Chase Savings account and deposit at least $10,000 in new money within 20 business days. You must also maintain that balance for at least 90 days.

The accounts themselves aren’t too remarkable. The Chase Total Checking account charges a $12 monthly fee unless you have direct deposits totaling $500 or more, a minimum $1,500 balance at the beginning of each day or a $5,000 average beginning day balance in combined account balances. The Chase Savings account also charges a fee, $5 per month, that you can waive with a minimum $300 balance at the beginning of each day, at least one repeating automatic transfer of at least $25 or more from your personal Chase checking account or Chase Liquid® Card, a linked Chase College Checking account for Overdraft Protection, an account owner younger than 18 or a qualifying linked account. Chase provides users with a mobile app to manage accounts.

Best Savings Account Rates from Credit Unions

Some people prefer to do their banking with credit unions because of the member benefits that extend beyond the deposit accounts. This list includes credit unions that currently offer the best savings account rates for low and high depositors.

1. Digital Federal Credit Union – 6.17% APY, up to $1,000 account balance

Digital Federal Credit Union (DCU)

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NCUA Insured

Chartered in 1979, Digital Federal Credit Union is based in Marlborough, Mass. and is the largest credit union headquartered in New England by asset size. Eligibility for DCU membership is based on your family relationship to a current member, the company you work for or retired from, an organization you belong to or a community you’re a member of (where you live, worship, attend school, etc).

DCU offers its members a whopping 6.17% APY on its Primary Savings account. However, this high APY applies to the first $1,000 in your account. Everything over that will earn 0.25% APY. The account requires a $5 opening deposit and balance to maintain membership. There is no monthly service fee.

Transfers through DCU’s Payment Center impose a minimum amount of $0.01 and maximum amount of $2,500.

DCU offers account access through branches (both DCU and CO-OP), online, at ATMS and over the phone. There is no mobile app.

2. Blue Federal Credit Union — 5.00% APY, $25 minimum deposit

Blue Federal Credit Union

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NCUA Insured

Blue Federal Credit Union formed in 2016, as a merger of Wyoming-chartered Warren Federal Credit Union and Colorado-based Community Financial Credit Union. Blue has locations in Colorado and Wyoming, as well as thousands more CO-OP Shared Branches around the country.With a Blue Federal Credit Union Accelerated Savings account, it’s best to keep a maximum of $1,000 in the account. Balances between $25 to $1,000 maintain the high rate of 5.00% APY, while anything over $1,000 drops to 0.10% APY. To earn dividends at all, you must maintain a $25 minimum balance and make a transfer of at least $5 per month into the account. Dividends are calculated daily and paid monthly.Blue Federal Credit Union is accessible in person, over its 24/7 call center phone line, online and on mobile.

3. St. Mary’s Bank — 5.00% APY, $25 minimum deposit

St. Mary's Bank

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Founded in 1908, St. Mary’s Bank is headquartered in Manchester, N.H. It was the first credit union founded in America, known then as St. Mary’s Cooperative Credit Association. All its locations are in New Hampshire, but membership is open to anyone who purchases one share of capital stock for $5.

For higher-than-usual savings at St. Mary’s Bank, look to its Rainy Day Savings account. It gives a big 5.00% APY boost to balances $25 – $499. Balances between $500 and $999 earn 3.00% APY, remaining competitive, but balances $1,000 and over drop to a mere 0.05% APY. To earn interest, you must make a monthly automatic transfer of at least $25 from direct deposit or a St. Mary’s Bank checking account.

Almost quite literally meant for rainy day savings, this account limits you to one free withdrawal per month. Each subsequent withdrawal will cost $2. There is no monthly fee on the account.

St. Mary’s Bank is accessible online, over the phone, at branches and through its free mobile banking app, available for Android and Apple devices.

4. CommunityWide Federal Credit Union – 1.90% APY, $1 minimum deposit to open account

Communitywide Federal Credit Union

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NCUA Insured

CommunityWide Federal Credit Union was founded in 1967, originally known as West Washington Association Federal Credit Union, settling into its current name in 1985. Based in South Bend, Ind., CommunityWide opens membership up to employees/retirees/donors of select employer groups, relatives of qualified members and members of select charity groups.

The Funds account from CW is a unique approach to savings. You’re allowed to make a withdrawal from the account between the 1st and 5th of each month; any withdrawals outside of that period are subject to a penalty of seven days’ dividends. Complying with this account’s requirements allows you to earn at 1.90% APY, a higher rate than the credit union’s standard savings account. You need only $1 to open an account and there is no monthly fee to maintain the account.

In addition to online access, CW provides mobile access either through your browser or its mobile app available for iOS and Android, which allows for check deposit.

5. USALLIANCE Financial – 1.70% APY, $500 minimum balance amount

USALLIANCE Financial

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NCUA Insured

USALLIANCE Financial was founded in 1966 by a handful of IBM employees. Today, it opens up membership to various neighborhoods in the New York City metro area, select schools, houses of worship and members of certain community-oriented organizations.

The High Dividend Savings account earns 1.70% APY and compounds interest daily. You’ll need to open an account with at least $500 and maintain a $500 minimum balance to keep earning dividends.

While there is no monthly fee, there is a $5 withdrawal fee that applies to any movement of money out of the account, including transfers. To transfer funds between accounts, you can initiate either through USALLIANCE or from your external account. Transfers will take a few days to post.

USALLIANCE offers its mobile app in both the Apple Store and Google Play. It allows you to view all your activity, pay bills, deposit checks and more.

Savings Account FAQs

What is a savings account?

A savings account is a type of deposit account where you can stash money for any length of time, long or short. Banks and credit unions reward you with an attractive return on your savings balance — thanks to the magic of compound interest, your savings can grow steadily over time. Keep in mind that unlike checking accounts, savings accounts aren’t designed to handle frequent transactions. Due to the Federal Reserve’s Regulation D which mandates certain types of telephone and electronic withdrawals, including transfers from savings accounts up to 6 per statement cycle.

While they give customers a safe place to stash their money, savings accounts serve a different purpose for financial institutions. Banks and credit unions use their customers’ deposits to fund loans and other products. Banks charge borrowers interest on loans, which funds in part the interest you earn on your savings deposits. So when you open and fund a savings account, you’re helping your bank fund its business.

Is my money protected in a savings account?

The money you place into a savings account at a bank is generally protected by FDIC insurance, up to the legal limit. This limit applies per person, per bank, per ownership category.

For example, you would receive full FDIC coverage of a $250,000 deposit made to a savings account at ABC Bank, and you would get full FDIC insurance on $250,000 deposited in a savings account with XYZ bank.

If ABC Bank went under, you wouldn’t lose a dime of your deposit. The FDIC would either set you up with a new account at another FDIC-insured bank for the same amount as the closed account, or send you a check for the balance. However, if you had a $50,000 checking balance and a $250,000 savings account balance with ABC Bank, you would only receive $250,000 in total FDIC insurance for your accounts — with a potential loss of $50,000.

Credit unions rely on National Credit Union Administration (NCUA) insurance. The NCUA is an independent agency that maintains the National Credit Union Share Insurance Fund (NCUSIF), which funds deposit insurance payouts. All federal credit unions are insured by the NCUA. State-chartered credit unions are regulated by the state supervisory authority where the credit union’s main office is located, but they may also have NCUA insurance.

How should I use funds in my savings account ?

Money kept in a savings account is best left alone unless you absolutely need it. To maximize the return on your savings, stash most of your liquid cash flow in a savings account, and only keep the funds you need for day-to-day spending in your checking account. That allows your money to grow more efficiently — more money in a savings account means more interest earned and compounded.

Is it easy to move money in and out of a savings account?

How easy it is to move money in and out of your savings account depends on your financial institution. Typically, a transfer between deposit accounts goes through Automated Clearing House (ACH). ACH transfers should only take one to two business days to clear, often clearing immediately or within one business day. Some institutions, however, may take the full two days depending on their own rules and regulations.

Keep in mind that savings accounts have a limit of up to six certain transfers or withdrawals per month, thanks to the Federal Reserve’s Regulation D, or Reg D. This limit only applies to “convenient” transfers and withdrawals made by “preauthorized, automatic, telephonic agreement, order or instruction, or by check, debit card or similar order made by the depositor and payable to third parties.” Less convenient transactions are exempt from this regulation, including withdrawals or transfers made in person at the bank or ATM, by mail or over the phone.

Making more than six transactions per cycle will often result in an excessive transaction fee depending on the financial institution. Exceeding the limit several times can lead to the bank closing your account for good.

Do I need a savings account?

It’s safe to say that everyone should have a savings account. If your money is going to sit in a bank account, it might as well earn interest while it’s there. And if you’re going to earn interest, it’s surely best to find an account that earns the most interest possible — namely a high-yield savings account.

Even if you’re not interested in chasing the highest possible interest rate, you should still have a savings account to keep your money safe. Some people don’t trust banks and stash cash under their mattresses. But what happens if your house burns down or there’s a break-in? Stolen or lost funds are gone for good. Meanwhile, money in a savings account is kept safe by the FDIC, which even offers bank skeptics peace of mind. FDIC insurance means you’ll get your money back no matter what.

What should I consider when applying for a savings account?

If you’re not sure which account to choose, consider your savings priorities first. If you’re trying to reach a savings goal, a high-yield savings account will help you reach your goal faster than a lower-rate account.

Perhaps you want an account where you don’t have to worry about fees. There are several free savings accounts and accounts that don’t charge for excessive withdrawals that would be perfect for your needs.

Generally, though, these two features should be your top priorities when applying for a savings account. A high-yield savings account grows your money more efficiently, and not having fees taking out a chunk of those savings helps you keep it.

Is it better to have a savings account with a bank or a credit union?

If you’re looking at interest rates, there’s not much difference between the average savings accounts offered by banks and credit unions. In June 2019, the average savings account rate from brick-and-mortar banks earned just 0.28% APY, while credit unions had an average APY of 0.25%. But that doesn’t mean you won’t find competitive rates at banks or credit unions — it simply means you’ll need to shop around.

The same goes with fees. A 2018 MagnifyMoney survey of 57 rewards checking accounts from banks and credit unions indicated that credit unions tend to charge slightly higher fees than their traditional bank counterparts. However, credit unions are nonprofits, and tend to charge fairer fees than big banks do.

For many people, the choice of bank or credit union is a matter of personal preference. When you join a credit union, it means that you own a piece of the institution along with the other members. With a credit union there’s more transparency about how your deposits are being used — many people prefer to know that they are funding loans and helping other members, as opposed to paying big executive paychecks.

When it comes to physical access, banks usually have credit unions beat. Big banks have the money to spread their branches throughout the country, while credit unions tend to serve specific communities and locations. Still, credit unions very often partner with other credit unions and ATM networks to provide their members with widespread ATM access. Note that the CO-OP Financial Services credit union service organization has the second largest branch network in the United States.

Why should I open a high-yield savings account?

A high-yield savings account is an easy way to boost your savings without any extra effort on your part. Let’s say you have $5,000 in a 0.01% APY savings account, which is a typical rate from traditional, big banks. Assuming you don’t make any additional contributions, in a year, you’d earn a whopping 50 cents in interest. That’s a pretty poor rate.

Switching that $5,000 deposit over to a high-yield savings account that earns 2.00% APY would yield $100 and change in interest annually — that’s definitely a sight better than 50 cents. Additional recurring deposits, perhaps monthly, would increase your savings even more. Setting up automatic recurring deposits an easy way to turbocharge your savings.

What fees are typically associated with a savings account?

Many deposit accounts charge a monthly maintenance fee. The exact fee amount depends on the bank and specific account, but they can range anywhere between $5 to $15 a month. The good news is that there’s almost always a way to waive the fee. Typically this means maintaining a minimum monthly balance or making a certain number of transactions per month. You seldom have to worry about any monthly fees with online savings accounts.

Banks often charge for returned deposits, overdrafts, excessive transactions, expedited delivery or transfers, incoming and outgoing wire transfers, and paper statements. Avoid these things and skip the fees. If you’re worried about overdrafting your account, monitor your balance closely. There’s no need to pay $35 for overdrafting your account.

Are online savings accounts safe?

Many of the best savings accounts are available online. By operating only over the internet, banks are able to save on the cost of owning and maintaining physical branches. Banks pass those savings onto their customers in the form of the high rates you see above.

But just because they’re online doesn’t mean they’re any less secure than a well-known bricks-and-mortar bank. Reputable online banks offer FDIC insurance on your balances up to the legal limit. If you’re unsure, you can use the FDIC’s BankFind tool to double check a bank’s insurance status.

As for online security, most banks employ the same security features as the big banks, if not more. This includes network and browser encryption, firewalls, anti-virus scanning and anti-malware protection. Banks may also offer additional safety features like two-step authentication, automatic logout, fingerprint identification and proactive account monitoring. You can always check a bank’s exact safety features on its website, which applies to both online-only and brick-and-mortar banks.

Can I open more than one savings account?

You sure can. If you have a lot of cash on hand, opening multiple savings accounts can allow you to maximize your FDIC insurance. Think of the scenario mentioned above: Keep $250,000 in an ABC Bank savings account and $250,000 in an XYZ savings account. Dropping the total $500,000 in a single ABC Bank savings account would leave $250,000 uninsured.

Opening more than one savings account may also help you keep track of separate savings goals. For example, you can use one savings account to house your emergency fund which you never touch except for dire circumstances. Keeping it separate from your other accounts may make it easier for you to avoid dipping into your emergency backstop.

If you do have more than one savings account, just make sure they all earn at competitive rates.

How often do savings account rates change?

Unlike certificates of deposit, savings accounts have variable rates. This means that the bank can decrease or increase their rate at any point, often without notice. However, you can typically expect rate changes to happen on or right after the start of a month.

Deposit account rates often track the federal funds rate, which is set by the Federal Reserve. The federal funds rate establishes the rate banks and other financial institutions charge each other for lending. So when the federal funds rate is cut, banks tend to cut their own rates in response. This includes not only deposit rates, but loan rates as well. Conversely, banks boost their interest rates when the Fed raises the federal funds rate. Keep an eye on the Federal Reserve’s regular meetings to get a better sense of where the federal funds rate — and therefore your deposit rates — are headed.

Do I pay taxes on savings account interest?

If you earn $10 or more in interest in a year, then yes, your savings interest is taxable. Your bank or financial institution will send you a 1099-INT form documenting the interest you’ve earned. Using that form, you include your interest earnings with your annual tax filing. The bank will also send a copy of your 1099-INT form to the IRS.

Even if you don’t receive a 1099 from your bank, you’ll still need to report interest earned on your tax return. Plus, if you earned more than $1,500 in interest in a year, you’ll need to list out the sources of all that interest income on Schedule B of the 1040 Form.

Your earned interest is taxed according to your marginal tax bracket. If you earned $50 in interest and you’re in the 22% tax bracket, you’ll pay $12 in taxes on that interest earned.

What are the alternatives to a savings account?

Having a savings account is a crucial part of your financial life, but there are other types of deposit accounts that you can (and perhaps should) fit in.

Certificates of deposit

A certificate of deposit (CD) is a time deposit. Unlike savings accounts, which have no expiration date, CDs operate according to defined terms. Typically, CD terms range between three and 60 months, although some institutions offer terms beyond these parameters. Once you make your initial deposit, you have to wait for the term to expire — or mature — to access your funds and interest earnings.

CDs are a solid savings alternative for folks who have already maxed out their other savings accounts. They’re also good for longer-term savings goals. Opening a longer CD lets you lock in a high rate for the length of the term and not have to deal with the rate fluctuations that come with regular savings accounts.

CDs often require a minimum deposit to open, often ranging between $500 and $10,000. Any deposits larger than that are often considered “jumbo” CDs. However, there typically aren’t monthly fees to worry about with a CD.

Withdrawing money from a CD before maturity will result in an early withdrawal penalty. Remember how banks use savings accounts to fund their loans? The same is true here, except with CDs, you’re essentially making a promise to the bank that they can use those funds for a set amount of time.

For example, if you open a five-year CD, the bank expects to be able to use the funds for loans over a period of five years. If you withdraw that money after three years, the bank loses access to those assets and charge you a penalty. The penalty is often expressed as a portion of the interest earned. In this example, you might be charged 365 days’ worth of interest for making that early withdrawal. Some banks may offer “no-penalty” CDs, which tend to have shorter terms, that allow you to avoid the penalty.

Money market account

A money market account resembles a savings account more closely. It earns interest without an expiration date and limits your outgoing transactions to six per cycle. However, money market accounts can also include some checking account features like a debit card and the ability to write checks. This makes them a good alternative if you plan to dip into the account a bit more regularly, rather than using it only for emergencies.

Money market accounts tend to earn at higher interest rates than regular savings accounts. However, they also tend to require higher balances to open and then earn interest. Money markets often charge monthly fees, as well, even when they’re online.

Checking account

Checking and savings accounts are the bread and butter of your financial life. While savings accounts are meant for stashing your money away, checking accounts are designed to help you move through the world, making payments, sending transfers, getting cash and more.

That doesn’t mean that your checking account can’t earn interest, too, however. Maximize your savings by opening a high-yield checking account to match your high-yield savings account. Checking accounts don’t earn at rates as high as savings accounts, but that way, all your money in all your accounts can be growing. For more efficiency, consider keeping the majority of your funds in your savings account for better growth — then you can transfer funds over to your checking account as needed.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.