How To Open a High-Yield Savings Account

Having an excess sum of money to deal with is not the worst problem in the world. It can be a challenge, however.

What do you do with money you want to save and help grow?

One of the easiest, safest, and most productive options is a high-yield savings account (HYSA). As the name suggests, this kind of account produces more interest – 10 times as much in some cases – as the standard savings account at your bank. It is a smart place to secure your money without losing easy access to it and still growing your balance.

The first step to opening a HYSA is deciding on a bank that provides the best returns, the least risk, and the fewest fees or penalties. That means shopping around. Begin online, since most high-yield savings accounts are offered by online-only banks for a simple reason:  they have far less overhead expenses

And while most brick-and-mortar banks also offer high-interest savings account options, the best way to find them is still to search online.

Once you identify your preferred bank, you can open an account. Again, doing so online is easy, convenient, and secure. You will need your Social Security number (or Tax ID number) and at least one form of identification such as a driver’s license or passport. If it is a joint account, provide this information for everyone with access to the account.

The other thing you will need is money to deposit. As part of your research, find out the minimum amount banks require to open a HYSA.

High-Yield Savings Accounts – What Are They?

A savings account is the most basic way to save money, whether your grandparents gave you a bankbook for an account with $5 in it, or you went online to open an account for yourself.

A savings account is safe. Your money is protected by the Federal Deposit Insurance Corporation (FDIC), which was created by the federal government in 1933, during the Great Depression, to prevent people from losing money if their bank closed down. With safety comes relatively low interest rates, so growth is slow.

The HYSA is every bit as safe as traditional savings accounts, with full FDIC protection, but the interest rate is significantly higher. Why? Because the number of banks has grown significantly with the advent of the Internet. Online banks don’t have the overhead costs of traditional, brick-and-mortar banks, and they are in fierce competition for investors’ dollars.

That works in your favor. While a traditional savings account can earn 0.5% interest, a high-yield savings account can earn 5% or more. Factor in compound interest, and that means your money is working 10 times harder for you.

Who Should Open a High-Yield Savings Account?

Your traditional savings account and checking account are tools for handling day-to-day and month-to-month expenses.  You can transfer funds back and forth between those accounts frequently, depending on immediate financial needs. When the mortgage is due, you may transfer funds from savings to checking. During a slow week or two of bill paying, you can transfer funds back to savings, where there is a modest interest rate.

But if you receive an unexpected sum of money, you could deposit it in a HYSA. This money is not meant to be used to pay everyday bills, but it is there and accessible in case of an emergency.

If you find yourself in a similar position – whether it’s a small windfall or your savings have simply outgrown your regular needs – then a high-yield savings account may be the perfect solution.

If you are investing for the long term, you may consider a CD (certificate of deposit) or a money market account. Those options can provide even greater returns, but you sacrifice ready access to your own money. Fees and penalties for early withdrawal can take a bite out of your savings.

A high-yield savings account grows money faster than a traditional savings account and is a good option for someone with short-term financial goals – saving for a vacation, a down payment on a house, or creating an emergency fund. You can even pay off credit card debt faster by using a high-yield savings account to set money aside when the bills come due.

What To Know Before Opening an Account

Once you learn about high-yield savings accounts and decide it’s the right thing for you, the next step is being prepared for the process of creating an account. There are some questions that need to be answered, starting with what bank you choose for the HYSA.

Minimum Opening Deposit

Many banks require a minimum deposit when you open a high-yield savings account.  If a bank requires a $5,000 minimum deposit at opening, it may also require that minimum balance to receive its best interest rates.

Competition has led online banks to remove the minimum deposit and balance requirements. Be sure to check a bank’s policies before opening an account.

It is also a good idea to be realistic about the amount of money you can put into a high-interest account without touching it, at least long enough to accrue some interest.

Choosing Your Bank

Banks generally advertise the interest rates they offer as well as any restrictions like minimum balances or fees. When you try to find the best bank for you, factor in all applicable information: rates, fees, and even the name of the bank. While all accounts are FDIC-protected, it may be reassuring to stick with a familiar name.

Understand the Fees

High-yield savings accounts generally do not come with many fees attached. It is important to be aware of any fees before you open an account.

Some accounts come with monthly fees or fees for transactions such as withdrawals. Accounts with a minimum balance requirement may assess a fee if your balance dips below that level. Or, instead of an outright fee, a bank may drop your interest rate to the level of a standard savings account.

Be aware of any possible fees before choosing a bank. You may be able to find alternatives without fees.

Opening a High-Yield Savings Account

Once you’re ready to take action, you should be prepared for the steps you’ll be taking to open an account.

Gather Your Documents

The bank needs to know exactly who is opening a new account. You will need a photo identification, such as a driver’s license or passport. Often you will need a second form of ID, such as a utility bill with your name and address printed on it.

Have your contact information ready, including your full address and your Social Security or Tax ID number.

Banks may have specific requirements that differ from this basic list. Check the bank’s website before beginning the process.

Fill Out the Application

Applications can be filled out in person at the bank or online. Have relevant information handy  to streamline the process.

Most banks do not check your credit scores. Nevertheless, having a good credit score is always helpful in dealing with financial matters.

Some banks may approve or deny your application immediately. Others may take several days to make a decision.

Transfer Money to your Account

Some banks require an immediate electronic transfer of funds, at least the minimum initial deposit, from your existing account into your new HYSA. Some banks may allow you to open an account and then deposit funds later.

You can transfer funds from another bank account, write a paper check, or perform a mobile deposit of a check into your new account. You may have to provide your bank’s routing and account numbers, which are printed on each check you have. An online account may also ask for your bank’s login credentials.

Set Up Online Features

The days of the old bankbook where you hand-wrote deposits and withdrawals are long over. With a high-yield savings account, you’ll have plenty of bells and whistles to deal with.

When you have the account information in hand, you can enroll in online banking. You’ll be able to access your account information, including your current balance and a record of transactions, on your personal computer.

You will receive a username and select a password. Be sure to save that information in a secure place or by using password storage software.

Next, download your bank’s app to your cellphone. Once you sign in with your username and password, you will be able to monitor and manage your accounts. The app can also provide account alerts and information.

Banking and Investment Resources

If you find that a high-yield savings account is not the right choice for you, remember there are plenty of other investment options available.

• Money market accounts generally require higher initial deposits and balances.
• Certificates of deposit (CDs) require investing a fixed amount for a fixed term, usually six months or longer. You don’t have access to your money before the term ends – at least not without paying a penalty.
• Investing in the stock market can provide higher returns than even the best high-yield savings account. But that comes with risk. Instead of FDIC security, your investment will rise and fall with the market. Traditionally, the market pays off if you’re able to invest for the long term.
• Saving is one good way to improve your financial outlook. Another is to reduce your debt. Consider debt consolidation options to reduce your monthly expenses.
• One good question to consider: Do you pay taxes on high-yield savings accounts? The short answer is yes, but the benefits may still outweigh the negatives.