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Most of us know that a mattress isn’t the best spot for our savings to be in. But, I’d take it a step further and argue that your typical savings account isn’t the best spot either. If you aren’t utilizing a high yield savings account, NOW is the time to do so!

Before you pay off debt, save for a house, invest, or do anything else with your money you need to have a savings account. However, the type of savings account you have matters immensely!

Unfortunately, your typical checking + savings combo won’t cut it in most cases. While those savings accounts are good for some things, like short-term savings, you are missing out on some major opportunities that can only be found in a high-yield savings account.

And the closer your money is to your spending, the more likely you’ll “accidentally” spend your emergency fund. Or, at least resent it as you imagine all the awesome things you could be doing with that money.

In fact, I recommend keeping both an emergency fund and any sinking funds for big purchases in a high-yield savings account completely separate from regular checking and savings accounts. We’ll talk about why, but first, let me explain what this type of account is.

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What is a High Yield Savings Account?

The name probably gives it away a bit, but a high yield savings account is a type of savings account that has a higher annual percentage yield (APY) than your standard savings account offer.

APY is important because it also has the benefits of compounding. Simply put, your APY earns you interest on top of your savings. Then, that total amount (interest + APY earnings) earns an even greater annual percentage yield. The higher the APY, the better!

High Yield Savings Account vs a Standard Savings Account

A typical savings account will offer you about .10% in APY. On the other hand, the high yield version is typically five times higher at about .5% (or more!).

On the flip side, it can take longer to access your savings in a high-yield account. The transfer times may vary but you should expect about a 3-5 business day wait for the money to land in your checking account. You’ll want to check with your specific bank to find out what methods they provide for withdrawing and transferring money.

Additionally, there may be a limit on how many times per month or year you are allowed to transfer funds.

It’s important to note that almost all high yield savings accounts are held in online banks, rather than brick and mortar. This can be a plus or a minus, depending on your needs. Personally, I am more than happy to avoid waiting in the bank lobby, especially these days!

Why Should I Keep My Savings in a Separate Account?

So, why should you keep your savings in a separate account? There are several reasons why this set up may be advantageous for you:

Keep Money Out of Sight

It’s not uncommon to log in and check your checking account daily or even several times a day. Typically, your everyday savings account is with the same bank, so I often get a glance at that balance as well.

On the flip side, my high yield savings account is with a totally different bank (I use and recommend Axos, but more on that below). I don’t look at that one nearly as often, so it’s almost a fun surprise when I do log in! It helps keep the temptation to transfer and spend at bay.

Money is Harder to Access

Additionally, money is harder to access with high yield savings. This curtails impulsive spending—no more transferring savings over to cover a “great deal” on a random purchase.

Instead, with a high yield savings account, you have to be very intentional and plan ahead with your money, since it isn’t transferred over for 3 business days or more!

Earn Greater Returns on Your Savings

Of course, a huge benefit is that you can earn a greater return on your savings. While .5% may not seem like much, it is certainly a much better yield than what .1% provides! Over time, the APY of your savings adds up and you’ll see the difference.

Plus, many high yield savings accounts offer tiered interest rates rather than a flat one. This means the more money you save, the higher APY you are offered. This incentivizes you to save (and earn!) even more.

Where Should I Keep My Emergency Fund And Sinking Funds?

I highly recommend you keep both an emergency fund and your sinking fund savings in a high yield savings account. I know the temptation is often to place emergency funds in a checking or standard savings account so it is more readily accessible, but I can think of few emergencies where you can’t wait 3 days to make a payment.

Plus, many high yield accounts now offer ATM cards that can be used in case of an emergency, or offer quick ways to transfer cash out via apps such as Venmo. By the way, if you are unsure how much savings you need, this article shows you how to calculate the amount of your emergency fund in just a few minutes.

When it comes to which bank to use, any HYSA is a good option as long as it meets this basic criterion:

1. Has no monthly fees. Rather than give your hard-earned cash to pay fees, keep it in your savings accounts! Many banks offer fee-free accounts, so don’t settle on this one.
2. APY is above .5%. This is what makes it different from a typical account. All things being equal, the higher the APY, the better!
3. Is FDIC Insured. Most banks are FDIC insured. But, it’s definitely something worth checking. In the event that the bank closes, the FDIC will cover up to a certain dollar amount (in the hundreds of thousands). This way you know your savings are safe, no matter what happens to the bank.

My Recommendation: Axos Bank

As I mentioned above, I currently recommend Axos Bank. I’ve been using them for quite a while, and have been really happy with the service provided.

There are no monthly fees whatsoever with any of the accounts, which I love. Rather than pay fees to a bank, I get to keep more of my hard-earned cash! Plus, they also offer free incoming wires. That means you can wire money to your account without losing a chunk to fees.

Remember how I said you should look for a bank that offers at least .5% APY? Well, Axos Bank offers even more. They have a .61% APY which is over six times the national APY! This means you can earn at a much higher rate with Axos than you would be able to at other institutions. Remember, the higher the APY the better!

You do need to put a minimum of $250 in to open an account, but there are no minimum balance requirements to meet otherwise.

While I don’t recommend you use them for a sinking or emergency fund, I also appreciate that Axos Bank integrates with 3rd party apps such as Venmo and Mint.

Lastly, they have awesome customer service. You can speak with someone via chat 24/7 – no more annoying holds on the phone or pointless trips to the bank!

>> Sign Up For An Axos High-Yield Savings Account Here <<

When to Sign Up for a High-Yield Savings Account

Wondering when the perfect time to sign up for a high yield savings account is? I’ll tell you…NOW! Don’t get caught up in analysis paralysis trying to figure out which bank to use or what sinking funds you need it for (you can use one for all of them). Instead, choose a bank that doesn’t have fees and offers .5% APY or greater.

If you want a quick way to get started, you can sign up online with Axos Bank. The process is painless and fast, and you’ll be well on your way to outearning your old savings account!

>> Sign Up For An Axos High-Yield Savings Account Here <<