As featured in The Wall Street Journal, Money Magazine, and more!

Start the Decade Off Right: Open a High-Yield Savings Account

This article was written by in Banking. 14 comments.

It’s a new year and a new decade. I expect the next ten years will fly by and 2020 will be here before I know it. Thinking about how fast the future is barreling towards the present is inspiring me to start making real changes in my life, and if there is an opportunity to improve my financial condition along the way, I will do it. I want to start the decade off right.

There are a number of easy steps anyone can take to start the decade off right financially, particularly if personal finance hasn’t been a frequent consideration until now. Last week I mentioned you could set yourself up for a great decade by paying off debt. Another way to start the 10s in conjunction with paying off debt is to open a high-yield savings account.

I’ll be honest: “high-yield” is more of a joke than a description these days. The government of the United States wants to recover from financial crisis by encouraging banks to lend money. The economists in charge of monetary policy are offering these banks really low interest rates when they borrow from the Fed so the banks will in turn be more willing to lend to the public and make some money in the process. While this situation would be great for borrowers, if they qualify for loans, but it has created a bad situation for savers. Those low federal interest rates allow banks to offer laughably low rates on savings accounts to the public.

classic bank teller windowJust a few years ago banks like HSBC Direct were offering up to 6% APY while now they are offering around 1%. Even at 1%, savings accounts considered “high-yield” are still beating the traditional savings account interest rates you will find if you walk into a bank branch. The typical interest rate for a regular, non-high-yield savings account is 0.05% APY right now. That rate earns you $5 a year on a balance of $10,000. That hardly seems worthwhile.

High-yield savings accounts generally offer interest rates above the rate of inflation. So even though your money is readily accessible through withdrawal at any time, you’re not losing purchasing power while your money is in the bank, like you would be if you keep your cash under your mattress or in a typical low-yield savings account. As the economy improves, high-yield savings account interest rates will increase. These are always variable rates, so unlike most certificates of deposit, you are not locked into today’s lower rates.

If you are looking to keep your finances simple, I suggest choosing just one bank with a high-yield savings account and remaining with them for a long time. I, on the other hand, have savings accounts at about a dozen banks because I test and review them for Consumerism Commentary, but I would prefer a simpler approach for myself.

Choosing a high-yield savings account

When choosing a high-yield savings account, there are several things to consider. First, of course, is the interest rate. Over the past few years, I have seen new banks enter the marketplace with a big marketing push and a surprisingly high interest rate, only to reduce the interest rate to the middle of the pack after a few months. This is a great strategy for attracting attention and new customers who are willing to move their money to follow the top interest rate. I’ve found that rate chasing is not worth the trouble unless the difference between rates would result in an increase more than a hundred dollars a year.

For this reason, you may not want to simply choose the bank with the highest interest rate. You would do better by choosing a bank that has a long history of being towards the top of the list. This listing of historical interest rates will help you determine which banks consistently offer the best.

You may also want to consider other aspects about the bank, such as availability and helpfulness of customer service, ease of website navigation, how long it takes to post electronic deposits, and whether you have access to ATMs for free. For answers to these questions it helps to read reviews written by actual customers.

A high-yield savings account forms the basis of a personal finance portfolio. It should be where your paycheck is directly deposited to allow your money to earn as much for you as possible. Your checking or payment account should be linked to your savings account so you can automatically transfer as much as you need to pay your bills each month in addition to the cash you need to withdraw.

Here are some suggestions:

FNBO Direct. High interest rates and simple website. Read my review.

HSBC Direct. High interest rates.

ING Direct. Average interest rates (for a high-yield account) and helpful customer support.

Ally Bank. High interest rates and simple website. Read my review.

This article is part of a series called Start the Decade Off Right on Consumerism Commentary.

Photo credit: walla2chick

Updated September 14, 2011 and originally published January 4, 2010.

Email Email Print Print
About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 14 comments… read them below or add one }

avatar 1 Anonymous


I would LOVE a review (and maybe a table!) comparing features of different online banks. I currently have and love ING’s online tools (no-minimum CDs, Online checking, awesome bill pay, easily open sub accounts) but maybe I’m missing something even cooler!

Reply to this comment

avatar 2 Anonymous

I closed 2009 on the right foot. I paid off my car note and credit cards. Then I began structuring a CD ladder. Therefore, my 2010 financial goal is to continue and follow through.

Reply to this comment

avatar 3 Anonymous

I am still not convinced with the online high yield savings accounts. I have my money in a money market account with my bank and the rates are basically identical. All my accounts are with one bank and it keeps things easier for me. Until that changes, I don’t plan on switching.

Reply to this comment

avatar 4 Luke Landes

It is hard to get excited about these rates. If you can get an MMA (not an MMF!) with high rates, that works just as well. Just watch out for the typical fees brick-and-mortar banks will stick you with.

Reply to this comment

avatar 5 Anonymous

I have been using SFGI Direct for a while. Their interest rate on savings accounts have been 1.85%. Why is this bank never shown on “The Best of” lists of banks? There is no minimum amount required to open an account, and no monthly fees associated with these accounts.

Reply to this comment

avatar 6 Luke Landes

You might want to read my review of SFGI Direct. Everything worked well for me, although nothing stood out as special, but after I opened my account, they closed their bank to new customers. I expect they won’t be offering high-yield rates for too much longer if they have to restrict new customers from signing up in order to maintain them.

Reply to this comment

avatar 7 Anonymous

They are kind of new but American Express savings account has a rate of 1.5%. The interface is not as cool as ING which I also have but the they seem pretty good so far.

Reply to this comment

avatar 8 Anonymous

The grotesque feature of these accounts is that people are losing
quite a bit of money. Flexo, you say that high yield accounts generally
offer rates above the rate of inflation. HAH!! (I’m not criticising you, but
the banks and government) I know the government says inflation is 0%
or less, but what planet are they living on? (and what planet am I living on,
expecting the c.p.i. to reflect reality?)

Reply to this comment

avatar 9 Luke Landes

I don’t think the CPI is supposed to reflect “reality” (the increase in everyday prices we see). It’s a metric that has more meaning for economists than for people who want to know how much it’s going to cost to have health insurance next year.

It still beats Bank of Mattress and savings/MMAs are liquid — no risk and practically immediate access.

Reply to this comment

avatar 10 Anonymous

They are almost a joke, 1% is almost nothing and you get taxed on it too.

John DeFlumeri Jr

Reply to this comment

avatar 11 Anonymous

I have a savings account that pays me 2%. Not saying who offers it because that will attract the rate chasers.

Reply to this comment

avatar 12 Anonymous

I have ING as my main online savings and while it might not be the highest high yield any more,it is still a great bank.

I am looking at the rates at the other online banks I use to see if it will make sense to move more money from ING over….but since ING is used for all bills it might not be worth the effort for me.

On a side note….we are still in the decade started in 2000. The new decade does not begin until 2011. Remember when you start at 0 a decade is 10….and the new decade starts in 11.

Reply to this comment

avatar 13 Luke Landes

Lulu: While it’s mostly a matter if preference I have to disagree with you. While it’s common to refer to the 21st century, which began in 2001, not 2000, it’s much more common to denote decades (the eighties, the nineties, etc.) by the digit in the tens place. I’ve never heard of 1991 being declared the beginning of the “200th decade.”

Reply to this comment

avatar 14 Anonymous

I opened a rewards checking account with my local bank, and it is currently paying 3.51%. I am slowly moving most of my money from my online accounts from ING, HSBC, DollarSavingDirect to this one. Of course, it comes with criteria to qualify for 3.51%, such as 10 debit purchases, 1 ACH debit or direct dep, online-only statements and use online banking. All of which I do anyway, so it was a no-brainer.

Reply to this comment

Leave a Comment

Note: Use your name or a unique handle, not the name of a website or business. No deep links or business URLs are allowed. Spam, including promotional linking to a company website, will be deleted. By submitting your comment you are agreeing to these terms and conditions.