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How should you choose a savings account?

Adam Moelis

Previously worked at Goldman Sachs and YipitData. Graduated summa cum laude from Wharton with a degree in Finance and Accounting.

One of the best things you can do for your personal finances is to stash away some money into a savings account. You can use this as a “rainy day fund” or “emergency fund” or even save up for something fun like a new purchase. Regardless of the purpose, setting money aside is a smart idea. But where exactly should you put your hard-earned money? There are many types of savings accounts and various things to consider. 

High yield vs. traditional savings accounts 

Putting money aside into savings is just one part of the financial equation. But where you put that money can make a big difference. There are typically two options you can consider when opening a savings account: high-yield savings accounts or traditional savings accounts.

A high-yield savings account will allow savers to earn more interest on their deposits — therefore getting a higher return and have the ability to earn more on top of the money you already saved. 

High-yield savings accounts have a higher Annual Percentage Yield (APY). APY refers to the amount of interest that you will earn over a period of a year. The APY on a high-yield savings account can vary from bank to bank. Additionally, the rate can change at the discretion of the bank. You can look for a high-yield savings account between 1% to 2% APY. 

Traditional savings accounts don’t offer much when it comes to interest. According to, 0.06%APY is the national average for traditional savings accounts. Even though getting 1% on your savings versus 0.06% may not seem like much, over a 30 year period, that’s the difference between a 34.7% return and a 1.8% return on your cash .

Why banks can pay interest 

You might be wondering why banks can even pay interest or why can some banks pay more than others? When you use a traditional savings account or high-yield savings account, you’re working with that financial institution. The financial institution can use your funds for other purposes. 

According to bank , “When you open a savings account, money market account, CD or other type of deposit account, you’re forming a partnership with your bank. You give the bank the right to lend out your money to borrowers in the form of loans, mortgages or credit cards, and in return you receive interest, also called savings interest.”

For example, a bank may use your funds to make loans at a 5% interest rate. So if they pay you less than 5% on your funds, they make a profit. The less interest a bank pays on your deposits, the more profit for them, so they want to pay you as little as possible as long as they can keep you as a depositor.

Why interest rates differ between banks

The amount of interest the bank can pay can depend on whether it’s a brick and mortar bank or an online-only bank. 

Online-only banks, which don’t have physical branches, typically offer a higher APY on savings accounts. These banks have fewer expenses and smaller overhead than brick and mortar banks, so they can pay more. 

Regardless of whether you go with a big bank or online bank, high-yield or traditional savings accounts, it’s important to look at any fees or minimums. 

Some banks may have minimum deposits or fees, or the amount you earn can depend on how much you have in your account. You want to read the fine print and make sure you know exactly how much you could pay in fees and what any minimums are. 

How your money is protected through FDIC

If you’re new to how savings accounts work, you might be concerned about the idea of having a bank using your money to lend out. The good news is that the FDIC was created to help protect consumers. 

The FDIC stands for Federal Deposit Insurance Corporation and helps insure bank deposits of up to $250,000. This means if something were to happen and your financial institution fails, your deposits are still insured — up to $250,000. So whether you go with a big bank or online bank, FDIC protection can protect you. 

How much money you should have in savings 

Opening your savings account is the first step. Putting a deposit in is the second. But then you need to maintain and build it up. So just how much should you have in savings? 

For emergency funds, personal finance experts typically recommend saving three to six month’s worth of expenses. That’s a good starting point, but given everything going on right now, more doesn’t hurt! 

However, if you’re in high-interest credit card debt, you’ll want to focus on paying that down first. If you want to invest, you want to make sure you have a cash cushion ready and are avoiding debt. 

If you’re saving up for a specific thing like a car or trip, you could budget for that item and save that amount in cash. 

Get started saving 

When it comes to savings accounts, there are so many choose from. Another option to consider is Yotta, a finance app that makes saving fun and partners with online banks to get you the most bang for your buck. 

When you make a deposit of $25, you get a ticket. You can use that ticket to pick numbers of your choice. There are weekly number drawings where you get a chance to win big. Prizes range from $0.10 all the way up to the $10 million jackpot. There are also no minimums, no fees. And even if you don’t win a prize, Yotta still pays you over 2x the national average on your savings.

The important thing is that you begin now with saving. Having money in savings can give you more freedom today and more security tomorrow. 

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