If you don’t have a high yield savings account, this video is for you. In this video, I’m going
to explain what a high yield savings account is, how they work, and share what I think are the
top 5 high yield savings accounts out there. And I’m willing to bet that at least one of them will
surprise you. So what is a high yield savings account? Well, there’s no official definition,
but typically these are accounts that pay you at least 5 times more than the national average for
savings accounts, meaning that you will get paid way more in interest on your deposits
than you would in a regular savings account. So what does this look like in the real world?
Well, when you’re looking to open a savings account, you’ll see a certain number
advertised called an Annual Percentage Yield, or APY. APY refers to the total
amount of interest you can earn on your savings over the course of a year, and it includes
compound interest. Ha! Yeah that’s right! This is another compound interest video. It’s the 8th
wonder of the world and you better believe I’m gonna take every chance I get to talk about it
because as Albert Einstein supposedly once said, “he who understands compound interest, earns it,
and he who doesn't, pays it.” Plus, the way it’s calculated on savings accounts is actually
pretty interesting if you ask me, so if you’ll let me nerd out for a minute
Neeeerrrrrddddd.
I think I can help you learn a thing or two about how the interest on your accounts is calculated.
So, to use an extreme example, let’s say you have a high yield savings account that pays you a 10%
APY, that’s annual percentage yield, and you have $100 in the account. Over the course of a year,
you will be paid 10% or $10 in interest on your account. But, these accounts typically pay you
interest once a month, so logically you might think that you will get paid 1/12th the APY,
or in this example 83 cents cents every month so that by the end of the year you get your $10.
But that’s not quite what’s happening because APY also considers compound interest
and is not the same as an actual interest rate. The interest rate you get paid on a 10% APY
is closer to 9.57%, which can be calculated using this formula here. With that, you can figure out
how much you’d actually get paid every month. So going back to our $100 example, after one month,
you’ll be paid 1/12th of that 9.57% interest rate, which is about 0.8% or 80 cents,
bringing your account balance up to $100.80. Then, the next month, you will be paid 0.8% again,
but this time it’s calculated based on $100.80 that you had at the start of the month which
is still 80 cents, which brings our total up to $101.60 in the account. But what about the
following month after that? You still get paid 0.8%, but 0.8% of $101.60 is 81 cents this time,
a penny more than the 80 cents from the month before. And for the next month after that?
82 cents. Then you’ll get 82 cents the following month, then 83, 84, 85, keep this going until at
the end of the year, you will have been paid $10 of interest, which brings us to our 10%
APY. Bam, full circle. Anyways, now that we know how interest is calculated, let’s jump into the
top 5 high yield savings accounts out there. Starting off with number 5, we have Synchrony.
Synchrony’s savings account is a good example of just doing everything right. They give a very good
APY that is currently at 0.6%, there’s no monthly fees, no minimum balance requirements, they have a
really solid app that’s rated 4.7 and 4.8 stars on the Google and Apple stores respectively,
and you can get an ATM card so that you can withdraw cash from your savings account at an ATM.
There’s nothing particularly unique or special about this account per se, but that’s okay because
most of the time, you just need a solid option that gets the job done. Moving on to number 4,
we have SoFi. So SoFi recently rebranded and kind of restructured their existing SoFi Money
service into what’s called Sofi Checking and Savings. This account is basically a 2 in 1,
checking and savings account with a very good 1% APY on up to $50,000 in savings.
The account also comes with no service fees, no overdraft fees, or minimum balance requirements.
You get a debit card with some cash back bonuses, and they have a neat automated savings feature
to help you save. You can even get your paycheck 2 days early if you link through direct deposit.
Right now, there’s even a $120 sign up bonus if you set up direct deposit with them,
and that’s where we have a bit of a ‘gotcha’ moment for this otherwise great account.
To get the sign up bonus and the 1% APY, you need to set up direct deposit so that your paycheck
goes straight into the account. For you, this may not be a big deal at all or it may be a complete
dealbreaker, and that’s on you to decide, but if you are fine with that requirement then this
account is a great all around option and can even replace your current bank account. Next up in our
top 5 savings accounts is a bit of a weird one. You know T-Mobile? The cell phone carrier with
the pink maps everywhere? Well they also have a checking account service called T-Mobile Money,
and while it’s technically a checking account, it pays a very competitive 1% APY which is more than
most high yield savings accounts out there. You don’t need to be a T-Mobile customer to
sign up for this account either, but T-Mobile customers do get paid a 4% APY on their first
$3,000 held with them which is just amazing right now. Again, like the other accounts on this list,
this account has no minimum balance requirements, no monthly service fees, no overdraft fees,
and you get a debit card that can be used at many ATM’s without any additional fees.
Moving on to one of the most popular high yield savings accounts for a very long time now,
there’s Ally. So Ally is an online-only bank and because they don’t deal with
maintaining physical locations, they can pass on savings of not running those
branches to their customers in the form of higher interest rates and lower fees.
Their savings account currently pay a 0.5% APY, with no minimum balance requirements,
no services fees, and just low fees all around. What’s even better is that they also offer an
online checking account that is also really good and well integrated with their savings account,
so you can easily transfer money between the accounts as you need it. Now let’s move on to
what I believe is undoubtedly the best online high yield savings account that you can get. But first,
if you want to keep learning about personal finance to set you up for success, don’t
forget to subscribe and turn on notifications so you always know when I upload a new video!
With that said, we have my pick for the best overall high yield savings account,
and that honor goes to Discover. Discover just does everything right with their savings account.
It pays a respectable 0.5% APY while having no maintenance fees, no minimum balances, no
overdraft fees, and pretty much no or really low fees for just about every service you can think of
like cashier’s checks, returned checks, and stop payment orders. They’re all no or low fees. And,
their app is easy to use and well-rated with a rating of 4.7 stars and 4.9 stars
on Google and Apple respectively. And best of all, they have highly rated customer service that you
can call at any time, 24/7 so no waiting for some crummy weekday hours to get the help you need.
If you’re into the whole online banking thing, you can even sign up for their online checking account
which, like Ally, is very easy to use and well integrated with their other products and services.
If there is one high yield savings account that I could recommend to just about anybody,
it would be this account. But with that, those were my picks for the
top 5 high yield savings accounts to choose from. So if you found this video helpful,
please give it a like and if you’re new to this channel, subscribe for more Five Minute Finance.