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There are many, many options for high interest savings banks. I am saving up for a house and do not want to put my money into anything besides something extremely safe. My cash is just sitting in my bank.

I search for "High Interest Savings Accounts" and many options show up. All the top percentage banks are online-only, have some sort of parent bank relationship. They say they are FDIC insured, yet my financial advisor is saying that 5% seems a bit high and that I should select a more stable 4.25%

I only need ONE savings account with the highest interest. Does it matter what I choose? I'm assuming that these online banks draw people in at 5% and drop it down in a few months?

These are the only things I look at, atm:

  • FDIC Insured
  • Interest Rate
  • Rate history from online reviews
JohnFx
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Phil
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4 Answers4

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Does it matter what I choose? I'm assuming that these online banks draw people in at 5% and drop it down in a few months?

With most accounts, even at brick-and-mortar banks they could change the rate they pay at any time. Check the terms and conditions to see if they make a time promise on new accounts.

You could put money in a CD, but it may not work for you if your time frame is unknown, or if you want to be able to add funds at anytime. The more flexibility they give you with a CD the worse the promised interest rate.

They say they are FDIC insured, yet my financial advisor is saying that 5% seems a bit high and that I should select a more stable 4.25%

You can check on the government websites to see if they are FDIC or NCUA insured. Some banks are FDIC insured but they also have non-FDIC insured products, make sure the account you are interested is insured.

I only need ONE savings account with the highest interest.

You might need more financial institutions, if you need to protect more than $250K; which is the maximum amount they cover for a individual customer. There are ways to protect more through the use of individual and joint accounts.

mhoran_psprep
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You can be "extremely safe" without FDIC insurance.

For example, a money market mutual fund held at one of the large discount brokerages such as Vanguard, Schwab or Fidelity will pay (currently Jan 2025) up to 4.3% - 4.4% while being about as safe as you can get without FDIC insurance.

Many of the most popular money market mutual funds are invested in U.S. Treasury securities, or securities of other U.S. government agencies that are backed by the U.S. Treasury. They are very safe.

These money market mutual funds are purchased at $1 per share and are intended to remain at $1 per share permanently, though this is not guaranteed. Falling below $1 per share is called "breaking the buck" and it is a phenomenon that has happened only twice in recorded history that I am aware of, once in the 1990s to a small relatively unknown fund that sold at $0.96 instead of $1 and once in the 2008 Lehman Brothers fiasco where one particular fund paid off at $0.97 instead of $1. Additional safeguards are now in place to make a recurrence extremely unlikely. In fact, Vanguard automatically puts cash proceeds from customer transactions into one of these funds unless otherwise requested, so their customers' cash is always earning something, yet remains safe.

The funds pay dividends once per month and you don't have to worry about timing your purchases and withdrawals because dividends are calculated just like interest from the date of deposit to the date of withdrawal.

You can open a brokerage account online at one of the above brokerages and fund your account by connecting the brokerage to your bank. Dividends can be set up for automatic reinvestment, similar to compounding interest.

If you choose online statements, there are no account fees, no transaction fees and no fees to withdraw your funds. Each year you'll receive a 1099-DIV, which works just like a 1099-INT that you would receive from a bank, and dividends are taxed just like interest.

How to choose which brokerage to use? Fidelity's cash management features can't be beat and they have a user-friendly website. Schwab's website is also excellent, and they have good research tools for investors, with excellent customer service like Fidelity has. Vanguard's website is a bit clunky and their phone help is not great, but they consistently pay higher rates than the other brokerages. Since you're not going to be a dynamic investor, but just a boring depositor building up a nest egg, you may choose the brokerage with the highest returns, which has been Vanguard for many years.

I'm not affiliated with any of the above, but I'm a customer of more than one of them.

MTA
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Do your own research on the banks offering the top rates. Look at their reputation, customer reviews, and track record. As long as they are FDIC-insured and have a stable history, I don't see any major downside to going with the 5% option, especially if this is just a short-term savings account for a house down payment.

Karen Brewer
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Most of the big names in high yield savings accounts are linked to the treasury rate and will adjust accordingly. Currently my account is paying 3.8%

One thing that you can do is look into "brokered CDs", that is buy CDs from your brokerage account. Fidelity does this through "News and Research" > "Fixed Income CDs & Bonds" and you are presented with a nice table of available options. Most bonds and CDs are offered in $1K increments, but some bonds do have a minimum amount to purchase. Some CDs are offered as partials ($100 increments). You can select the term that you like and all CDs are FDIC insured. Currently 3 months is 4.2%, and 1 year 4.3%

If you want to take on more risk and are willing to give up the FDIC insurance but be essentially guaranteed an income you can buy some short term "junk" bonds.

If I was looking for yield, I would do the CITIGroup Note for a 4.9% yield to maturity maturing in 9 months.

Pete B.
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