Should I open a high-yield savings account when interest rates are down?

High-yield account rates have gone down. Here’s how to determine whether it’s time to move your money.

Despite the coronavirus pandemic’s destructive effects on the U.S. economy, millions of Americans have recently added money to their savings — and now they're looking for more ways to boost their savings account in case of any emergencies.

According to a survey from MassMutual, more than 1 in 5 Americans (22%) saved at least $1,000 this past summer, with 10% reporting they squirreled away more than $5,000. The top reason people said they were able to save money was that they were no longer traveling.

If you're in a comfortable spot financially and you're hoping to make more interest on your savings, then you may want to consider opening a high-yield savings account. But before you start the process, you need to understand how interest rates play a role.

What is a high-yield savings account?

A high-yield savings account is a type of savings account that typically has a substantially higher interest rate than a standard savings account, with some high-yield accounts offering rates of up to 20-25 times the national average, which the FDIC currently puts at 0.05%.

Essentially, if you're looking to make more interest on your hard-earned cash, then you may want to consider a high-yield savings account. Maximize your earnings with these high-yield savings options.


Should I open a high-yield savings account when rates drop?

The Federal Reserve slashed its benchmark federal fund rate to 0% in March. Because yields on savings accounts tend to follow the Fed’s actions, many financial institutions have reduced their interest rates on high-yield savings accounts. Translation: now may be a good time to shop around for a savings account with a higher APY.

Today's high-yield savings account interest rates:

Most interest rates for high-yield accounts are between 0.55% and 1.21% APY.

With those significant rate fluctuations, you’ll want to look at several options before opening a new savings account. Online marketplace Credible can show you what multiple banks that offer high-yield savings accounts are offering — from the minimum balance requirement required and APY to whether an account is available in-person, online-only, or both. 

You'll also want to take time to read online reviews from customers and check out bank ratings on the Better Business Bureau (BBB) — high-quality customer service is no small thing.


What are the annual percentage yield (APY) rates?

Short for annual percentage yield, APY is the rate of return you earn in a bank account with compounding interest. To better understand this, let’s look at an example — one that illustrates the difference between a high-yield savings account and a traditional savings account.

Let’s say you deposit $10,000 into a high-yield savings account with a 2% interest rate. If you don’t make additional contributions or withdraw funds, your annual return would be about $200. Had you deposited the money into a traditional savings account with an APY of 0.05%, you would have earned only $5 in interest after one year.

No matter how much money you have to deposit — don’t leave money on the table! These high-yield savings options can give you more bang for your buck.


How do I apply for a high-yield savings account?

Applying for a high-yield savings account online is a simple process with sites like Credible, where you can explore your high-yield savings account options and compare APY rates in minutes.

One thing to keep in mind when weighing options, though, is an account’s terms and conditions.

More specifically, see if an account has any maintenance fees, minimum deposits, or monthly balance requirements (some savings accounts boast a higher APY, but they also have higher account fees).


Other strategies to maximize savings

Building your money in a high-yield savings account isn’t the only way you can save for your future. Here are a few other steps you can take:

Open a certificate of deposit. Traditionally CD rates are higher than savings account rates, but one thing to bear in mind: like savings account rates, CDs rates have fallen during the pandemic.

Stash your money in multiple accounts. If you have several savings goals, storing your money in more than one savings account can make it easier for you to track your progress toward each goal.

Set—and stick—to a budget. This one may seem like a no-brainer, but according to a recent survey, 20% of Americans don’t use a budget.

If none of these options interest you and you believe a high-yield savings account is your best bet, then follow Credible's steps to open up a high-yield savings account and save more money.