As the FED increases interest drastically in the US since Mar 2022, high-yield saving account (HYSA) started to become a must-have for expats in the US, to save money and earn high-interest rate. This type of account differs from your normal checking or saving accounts in that they pay a much higher interest rate (like 2% or 3% per year). Let’s dig deeper.
What is a high-yield saving account (HYSA)?
A high-yield savings account in the US is a savings account that offers a higher interest rate than a traditional savings account. These accounts are typically offered by online banks and credit unions, and they sometimes require a minimum deposit and a minimum balance to earn a higher interest rate. The keyword here is “sometimes or often” and not “always.”
Who offers high-yield saving accounts in the US?
A number of different banks or credit unions and other financial institutions offer high yield saving accounts. And their rates are often competitive with each other, with very small differences. So that means it may be better for you to go with a more well-known, reliable, and trustworthy option. Don’t be in a situation where you might lose your principal amount because of an additional 0.5 %/year interest.
What to look for when selecting a bank/financial institution to set up a high-yield saving account?
Check to ensure that your bank is part of the FDIC insurance scheme. Click here to learn more about FDIC, or use this tool Electronic Deposit Insurance Estimator EDIE to understand the rough amount that is insured for each account owner at a particular bank. “The standard insurance amount is $250,000 per depositor, per insured bank, for each ownership category.”
In layman’s terms, it means that if something happens with the bank, FDIC will pay you back a certain amount of money, per the US government rules and regulations.
If a financial institution’s name is Not familiar to you (which happens a lot for expats as we are not from the US), do check them out carefully using the FDIC website here. Don’t take what the company has on its website as proof.
There is nothing stopping you from opening multiple high-yield saving accounts at different banks
If you are afraid of putting all of your money in one basket, remember there is nothing that stops you from opening different HYSA at different banks :). Of course, you will need to repeat the account opening process multiple times, but many banks now offer online account opening, so it is quite convenient.
It is pretty straightforward to find out the typical interest rates offered by different financial institutions. A simple Google search will do. For example, as of early Dec 2022, the typical annual interest rate for high yield saving account is about 3%. When another company/institution offers a much higher rate than 3%, like 4% or more, be careful, do more research, and read the fine print. Remember that this is a very competitive field.
Variable rates vs. fixed rates
Given the current macro environment and what the FED has been saying consistently, we should expect the interest rate to go up in 2023. What this means is that the risk-free rate (offered by the US government via T bills/T bonds or saving bonds) will go up in 2023. And hence, it is reasonable to expect that the HYSA interest rate should go up too. Otherwise, people will buy short-term treasury bills (like 4 week maturity) as a way to keep their ideal cash.
With the above context, check carefully to understand the rate that the bank offers you for HYSA is a variable or fixed rate. And see which option is better for you.
None of us likes fees! So check if the prospective bank has:
- Minimum balance requirement. Below this amount, they will start to charge a fee
- Monthly maintenance fee
- Transaction fee like transferring fund out of the account
If they do charge certain fee, consider it carefully because it may not make sense to open a HYSA with them.
This is about how you can access your money, deposit money into the account, withdraw money from it, etc…
Typically, most banks should offer online access using the website or mobile app. Some banks with physical branches will allow you to access your money at their branches too. Check directly with each bank or read on their website. I dont need ATM card or being able to withdraw money from HYSA using ATM so this is not an issue for me. But if this is important for you, check the specific offering from the bank.
There shouldn’t be any restrictions but check it out just in case.
Other account features
Features like automatic savings, interest compounding daily vs. monthly, etc. are additional considerations. Interest daily compounding sounds great but only if you have a large amount of money over an extended period of time (years) so I dont worry about it too much.
Safety of the principal is still the number #1 priority for me.
Generally, interest earned on a saving account is taxable income. But since each person situation is unique, you will need to do your own research in this area.
Given the rising interest rate environment, I think expats should consider using High yield saving account (HYSA) as part of the overall financial toolbox. While HYSA can be a great way to save money and earn more interest than a traditional savings account, they are not the only option. Short term treasury bills, bonds, etc… can be other options too.
These HYSA accounts are typically offered by online banks and credit unions, and they sometimes require a minimum deposit and a minimum balance to earn the higher interest rate. When selecting a bank/financial institution to set up an HYSA, it is important to check if the bank is FDIC insured and consider the interest rates, fees, accessibility and withdrawal restrictions. Taxes may also be applicable on the interest earned.
Last but not least, I recently created a group on Facebook called Asian Expats in the US so that we can share/discuss more tips directly. Feel free to join.