One of the first big posts I wrote when I started this blog was about Netspend and their 5% interest savings accounts. At the time, getting 5% interest on cash in a bank account was amazing. At best, savings accounts were paying 1% interest, so taking the time to maximize my cash holdings made a lot of sense. These 5% interest accounts were also perfect spots to put my emergency fund. Indeed, for years, I’ve based the amount of my emergency fund on how much I was allowed to put into these 5% interest savings accounts.
Things have changed a lot over the past year or two though. Inflation went wild and the Fed dramatically raised interest rates in 2022. These higher interest rates have also meant higher savings account rates, as banks have raised rates to match the higher Fed Funds Rate.
My 5% interest accounts are still around these days, but their value today is far more muted. Most mainstream high-yield savings accounts pay 3.7% interest or more and there are many savings accounts out there paying 4% or more without jumping through any hoops. I think there’s still value in the 5% interest accounts that I have, but admittedly, if I didn’t already have them set up, I probably wouldn’t bother with them.
So what is the current landscape of high-yield savings accounts look like? Are the 5% interest savings accounts I once wrote about even worth the hassle anymore? In this post, I wanted to look at what’s currently out there and consider how I’d approach these high-yield savings accounts today.
My Original High-Yield Savings Strategy
When I first wrote about my high-yield savings account strategy, the main 5% accounts I used included the following:
- Netspend 5% Savings Accounts (Netspend, Ace Elite, Western Union, H-E-B, Brinks)
- Digital Federal Credit Union (DCU)
- Service Credit Union
- H-E-B Debit
In addition to the above accounts, I also used a 3% interest account from Service Credit Union, a 3.5% interest account from Workers Credit Union, and a couple of 4% interest accounts from Current.
These accounts did have some significant limitations, namely that you were limited in how much you could put into each one. They also took some work to set up, but I found the initial legwork was worth it since the difference in interest rates was so much (5% for most of them compared to 1% for a typical high-yield savings account). And once the accounts were set up, they ran themselves.
At my peak, my wife and I had $37,000 set aside in these accounts earning between 3% and 6.17%. That made for a good emergency fund. And it was useful to have these accounts since the alternative was to have my emergency fund in a regular bank account earning basically nothing.
These days, however, I have much less in these accounts given where interest rates are now. The 3% savings account from Service Credit Union and 3.5% savings account from Workers Credit Union aren’t worth using since normal high-yield savings accounts offer a higher interest rate. Current still has their 4% savings account, but it comes with requirements that make it essentially worthless now.
I still use all of the accounts that pay 5% interest or more but I no longer bother with any of the sub-5 % interest accounts. So, between me and my wife, we have $17,000 in these 5% interest savings accounts. That money is divided as follows:
- $10,000 earning 5% interest within 10 total Netspend accounts.
- $2,000 earning 6.17% interest in 2 DCU accounts.
- $1,000 earning 5% interest in 2 Service Credit Union accounts.
- $4,000 earning 6% interest in 2 H-E-B Debit accounts.
The benefit of these accounts isn’t that big since rates are so high, but since we already have these accounts open and they’re fully automated, there’s no point switching out of them unless they were to stop offering these high rates.
The Current Landscape Of High-Yield Savings Accounts
So what’s the current landscape of high-yield savings accounts? Right now, we’re at a point where money in a savings account can actually earn some significant interest. In terms of the mainstream banks, you’re looking at rates around 3.7% or more from banks like:
- Marcus by Goldman Sachs
For simplicity purposes, I’m not listing the exact interest rates in this post since the rates do vary, but the important takeaway is that these big traditional banks are paying good rates.
If you’re willing to go the Fintech route, Fintech banking apps like Wealthfront, Betterment, and SoFi are offering really high rates (higher than 4%). As I write this, Wealthfront is leading the pack, offering one of the highest interest rates available in an FDIC-insured savings account.
Finally, if you really want to maximize your cash savings, you could opt to go with smaller credit unions that are offering insanely high rates. For example, the Western Alliance High Yield Savings Account is offering over 5% interest as I write this with no special requirements and no limits on how much you can put into the account. Theoretically, if you had a million dollars in cash, you could put all of it in there and generate $50,000 per year of interest!
I haven’t personally moved money to Western Alliance yet, but I likely will do so, as it is an FDIC-insured bank account and is one of the largest banks in the US.
Would I Bother With The 5% Interest Savings Accounts Today?
Given what’s out there now, a good question to ask is whether I would bother with the original 5% interest savings accounts I recommended before. As I mentioned, I still have these accounts open and still maximize all of them. But the reason I do so is because I already had them open.
If I was starting fresh today, I probably wouldn’t bother with any of the 5% interest savings accounts that come with restrictions. Looking at the accounts, here’s my thoughts on them:
- Netspend takes too much work to set up and given how little you can set aside in those accounts, it’s probably not worth it. The only reason I’d recommend it is if you want to earn a signup bonus from Netspend.
- Service Credit Union probably isn’t worth opening at all given you can only get 5% on up to $500.
- DCU is an account I’d still probably open since it offers 6.17% interest and has a small signup bonus that’s easy to earn.
- H-E-B Debit is a mixed bag. It offers 6% interest on up to $2,000 but does take a little bit of work to manage. Most likely, I wouldn’t bother with it if I didn’t already have an account with them.
So, in short, what would I do? I’d probably only open these original 5% interest accounts if I wanted to earn the signup bonuses. But in terms of their interest rates, it’s just not worth the hassle considering the other options available.
I don’t know whether this is the new normal and we can expect savings accounts to actually pay decent interest. For now, though, there are a lot of good options out there, ranging from the traditional, high-yield savings accounts from large banks to fintech bank accounts to bank accounts from smaller banks.
My advice, if you’re sitting on cash, is to find any bank that offers a good rate that you are comfortable with. Don’t get too hung up on slight differences in interest rates unless the rate is several percent higher.
Outside of my original 5% interest accounts, the rest of my cash sits in savings accounts from Ally, Discover, and Marcus by Goldman Sachs. All of those are paying good enough interest that I don’t really have to go through the trouble of switching savings accounts.
Whatever you do though, if you have money in a savings account that’s still paying nothing, you absolutely need to move it. With rates where they are now, it’s an insult that some big banks are still paying nothing for their savings accounts.
I love reading your column and thank you for your advice.
The DCU account to get 6.1 interest said you have to become a member and in order to do that you have to be a family member of someone who works there. Was that true when you signed up?
Financial Panther says
Check out this post: DCU $20 Referral Bonus – Step By Step Guide (Plus A 6% Interest Savings Account) It walks you through how to open your account. You have to make a $10 donation to some school non-profit to be eligible for a DCU account. You can make that back just by the interest, plus it’s money going to a non-profit anyway.
Jenny | Floppycats says
I did your Netspend stuff about a year ago – so I have those accounts. But I have a HYS account with UFT (Axos) and it’s making 5.01% and I don’t have to watch it – any amount I have in there makes the 5.01%, which is nice.
Jenny | Floppycats says
…do you know how to close those Netspend accounts? Or will you just keep yours open and just keep transferring the small amounts every quarter or so?
Financial Panther says
I’m still using my Netspend accounts just because it’s all automated anyway. It’s not hard to close them – just send a message. Whether to close them or not really depends on whether you think the rates we have now are the new normal or whether we’ll go back to a low yield environment at some point. I have no idea. I remember when I was in high school (mid-2000s), all the high-yield savings accounts were paying 5%. But then since I’ve been an adult, rates have always been really low, so who knows.
Financial Fives says
There used to be banks like TIAA that had a yield promise or something like that, where they would always be in the top % of APY among national banks, so you wouldn’t have to shop around. But Ally, Discover, and others pay decent now and increase often in this environment. Now I just wish more bank bonuses would come back!
If you’re willing to tie your money up for a bit*, it’s really worth looking into Treasuries right now. I just put most of our possible-down-payment cash into a 6-month T-bill. Closed at 5.43%, which (with my high-tax jurisdiction and the state/local-tax savings), comes out to a just under 6% tax equivalent rate (!) vs. if we were going for a CD.
*And they’re actually more liquid and less punitive than typical CDs via secondary market – unless interest rates jump wildly.