A friend of mine called Trent and I kind of got in a back and forth about his criteria for choosing a High-Yield Savings Account. I really did not understand his approach about choosing, so I decided to tell everyone my approach.
I am going to switch my emergency fund from Citibank to a bank with a higher APY (Annual Percentage Yield). Here is some of the criteria I looked at, and the process I went through.
- FDIC Insured. This guarantees you $100,000 of your money back in case the bank closes down. While this may not seem very important for bigger, well known banks, it is more important than you may think. In a article I recently read, the writer stated if Vanguard closes down, she would eat her hat (Vanguard is not FDIC insured), and eat up to $100,000. The bank that I chose is not widely known as it just opened. I would have never chose it if it was not FDIC insured. Even with CitiBank, you need to be weary of the bank just closing out of the blue.
- Interest Rate. Ummm … I believe I am getting a High-Yield Savings account for the high interest rate. I am going to be moving from a 4.75% APY to a 5.30%. While it may not seem like much, after I did the math, I will be making an extra $5.50 for every $1000 invested. Since I will have around $3000 in my emergency fund in the next few weeks, that comes out to $16.50 per year. It may not seem like much, but as my money grows, it grows.
- Fees. Here is where the bank can excel or fall flat on its face. High fees will completely destroy the difference in interest you are getting. The bank does not have to be completely fee free, but it cannot have fees on actions that I will be using. Maintenance fees are the big killer, and any bank that charges them is out of their mind.
- Track Record. I like to look at a bank’s track record of interest rates. If they rise and fall a lot, I will shy away from the bank because I doubt the interest rate will stay high. It would be nice for a bank to guarantee its rate, but that rarely happens, even for a few months.
Now here is the process I went through:
- I went to BankRate.com to find a list of the top banks by interest rate. Their were some other sites, but they were all outdated as they still had Citibank at 5%.
- I sorted the banks by interest rate putting the highest interest rate on top.
- I threw out all the non-FDIC insured banks.
- I threw out all banks with start-up amounts higher than what I had. I also threw out banks that had too high of amounts to gain interest.
- I went through each bank from here and looked at fees. Any bank with a fee that would throw off my return, I crossed them off the list.
I got lucky and found a bank near the top of my list – iGoBanking. They have no fees, no minimums, and a 5.30% APY. This bank is fairly new, but many bloggers have been switching over to it. While this was at the top of the list, I still went through to make sure I did not miss anything good.