*This particular blog post will be updated on occasion as interest rates and preferred banks change. This article is current as of September 2023.*

Let’s talk savings accounts.

How much interest does your current savings account pay? No idea? Go check, I’ll wait.

Let me guess, somewhere around 0.01-0.09%? Yikes! With inflation over 8% in 2022 and now over 3% in 2023 (much closer to the long-term average),  that means if you keep your money in a standard savings account you are guaranteed to lose money. This fact seems to escape most people who instead assume that keeping your money in a form of cash such as checking/savings accounts, is the safest bet.

Now, everyone should have a readily accessible cash supply in a FDIC insured bank account. However, the amount and specific bank is what can vary.

Saving your money without a specific purpose is not the best strategy, in fact it’s horrible. Set SPECIFIC savings goals for your life. I recommend the bucket strategy in which you have a separate savings account (a bucket) for each goal and contribute to each regularly, but in order of importance.

Some specific goals (buckets) that should be housed in a savings account are your emergency fund, your vacation fund, your wedding fund, or something like an engagement ring fund. Basically it’s for anything you may need to pay for within the next year or two, but NOT for your day-to-day expenses.

Everyone’s #1 savings goal should be an emergency fund. Once that goal is met, you can continue on to other goals.

At minimum you should have 3-6 months worth of living expenses covered. As your family grows and your obligations increase, it’s best to grow that cushion.

This may sound like a lot, but life is completely unpredictable. A job loss, health emergency, home repair, or surprise tax bill are just a few of the things that could go wrong. If you don’t have cash to pay, then you could end up making poor decisions, like putting these expenses on a credit card or even skipping a mortgage payment.

So to avoid financial disaster, work your hardest to build up a cash supply of 3-6 months worth of living expenses and do not touch it unless an emergency occurs. If you need to dip in, then do so, and work to replenish the pot.

This is all taught and discussed in my class. Learn how to get good with money here!

Ok finally, back to the topic of interest rates and why it is so important. Your money needs to earn money, aka earn interest. This should always be what you are looking out for. Over the last year, interest rates have gone up quite a bit, which means banks are *kinda sorta* paying you again, yay! Keep in mind though, this also means the interest rates on mortgages, car loans, and credit cards have gone up as well.

When it comes to where to house these savings accounts mentioned above, we strongly recommend a High Yield Savings Account at an online bank. Brick and mortar banks are pretty sub-par and you can easily make do without one in your life. It’s the 21st century, people.

Below are She’s Good With Money’s top recommendations for an online high-yield savings account. (The list is in no particular order, but for full disclosure, I use Ally Bank because I love their bucket feature.)

Option 1.

Ally Bank High Yield Savings offering 4.25% APY. For the past few years Ally has been the talk of the (personal finance) town. It is an online-only bank and their APY is competitive, though not the highest. I’ve used Ally for a number of years now because they allow you to create buckets within your one savings account, which is exactly what I like! So you can create a bucket for vacations, emergencies, new car etc. and set up automatic transfers into each bucket.  No minimum balance.

Option 2.

SoFi High Yield Savings offering 4.50% APY. SoFi was mostly known for student loan refinancing but as of today they are really a full blown online bank offering checking, savings, investing, and credit cards. Their HYS rate is on the high end and with no minimum balance required and potential promotional cash bonus, Sofi is an attractive option for your savings. Plus if you’re looking to consolidate banks or ditch a brick and mortar bank, SoFi offers checking too, which would provide you with some convenience.

Option 3.

American Express Personal Savings, High Yield Savings Account offering 4.25% APY. For those of you who use American Express for charge cards or credit cards, this may be a convenient and familiar option for you. You can easily toggle between the HYS account page and your credit card account page when you log in from either end. I used Amex savings for some time, however they required you to open an actual new account vs. just organize money from your one account into buckets like Ally. That meant multiple 1099s come tax time. It wasn’t a huge inconvenience, but I have a strong disdain for the extraneous. No minimum balance.

Option 4.

Synchrony Bank High Yield Savings offering 4.50% APY. Synchrony is another one on the higher end of interest rates. They have no minimum balance and no fees. They also conveniently offer high yield savings account owners ATM cards, with no fee for withdrawals (actual ATM machines may charge their own fees). Therefore you’d be able to withdraw cash directly from the savings account.

Once you’ve picked an online high yield savings account…

The only step left is to link it to an external bank account. From there you should transfer any current cash savings to your new high yield savings account and set up monthly automatic transfers to reach your specific savings goals, whatever they may be!

A final point to make is that you should look out for a form called “1099-INT” from your high yield savings account come tax time (Jan-Apr 15). This tax document will show all of the interest earned in your account and you will need to report it on your tax return (assuming you will earn greater than $10 in interest).

So make a change and earn some more money! What takes a matter of minutes to open a new online savings account will earn you money that you were missing out on before. It may sound like small figures but 0.01% compared to 4.5% totally adds up and will help you reach your goals faster.

Happy Saving!