7 Best High-Yield Online Savings Accounts of 2022

High-yielding accounts can be the perfect tool for those looking to save money and increase returns. 

Table of Contents:

What is a high-interest savings account?

Can you lose money in a high-yield savings account?

How much interest will I get on $1000 a year in a high-yield savings account?

Which banks offer the highest rates on our list of best high-yield online savings accounts?

Which type of savings account will earn the highest interest?

Do you pay taxes on a high-yield savings account?

Are high-yield savings worth it?

What is the risk with a high-yield savings account?

Where should I put my savings money?

Is chime a high yield savings?

How much money can you have in your bank account without being taxed?

What is a high-interest savings account?

A high-yield savings account is an account that normally pays you 20 to 25 times the national average. This means that when compared to standard savings accounts you will be gaining more money back simply because of your savings. Normally, most people will keep their savings account in the same bank that they have their checking account, however with many online banks currently offering high-yielding safety account that tradition is starting to wane. As a result, different banks are competing to be the ones to offer the highest percentage through their high-yielding account.

• Interest rates on high-yielding accounts could lead to 20 to 25 times more earnings than traditional savings accounts.
• Most traditional banks also offer high-yield savings account and so it may be possible for you to have both your saving and checking account in one bank.
• The advent of online banks has led to increased competition and an increase in the rates for high-yielding savings accounts
• Electronic transfers have made it easier for people to have their savings account and their checking account in different banks
• When choosing your high-yield savings account you should consider the initial deposit requirements, interest rates offered, minimum balance requirements, and the monthly fees associated with the account you are opening. 

Can you lose money in a high-yield savings account?

High-yielding accounts are meant to be a savings account and not investments, as such you are much less likely to lose money when using a high-yielding savings account. Still, there are two occasions where you may find yourself losing money. 

1. Taxes

While the initial deposit that you make on your high-yielding account is not taxed, any accrued interest is. In fact, for any interest-bearing account, where interest causes you to earn more than $10 you are required to note it on your tax return. This means that while you are not taxed for the deposits you are making, you will be taxed for any money made through the interest in your account.

2. Inflation

Inflation does cause you to lose money, but rather what it does do is cause you to lose buying power. This means that if the inflation rate is higher than your interest rate at the end of the day while you may have more money in your account, that money will be able to buy you less stuff. This is something to be especially careful about in times of high inflation as it could result in the loss of your money buying power fast.

How much interest will I get on $1000 a year in a high-yield savings account?

How much interest you get in a year will depend on your APY. The higher your APY the more money you will end up with within a year of depositing your $1000. In most cases, high-yield savings accounts tend to have an APY of around 0.5%, especially when coming from some of the online banks that are currently available. This means that within a year the interest rate will cause you to earn around $5 just by leaving your money in that account. The good thing is that that means that the amount that you earned is non-taxable, nor does it need to be disclosed in your taxes as it falls below the $10 threshold. 

Which banks offer the highest rates on our list of best high-yield online savings accounts?

With so many online and traditional banks offering high-yield online savings accounts that can fully be managed online there are many different options that one can choose from. The following 7 are considered to be the best high-yield online savings accounts currently available, and they are the ones that you should turn your attention to if you are looking to sign-up for one in 2022. 

1. Marcus by Goldman Sachs, Member FDIC – 0.50% APY, has a $0 minimum balance

2. Discover Bank, Member FDIC – 0.40% APY, has a $0 minimum balance and $200 requirements to qualify for the bonus

3. American Express National Bank, Member FDIC – 0.50% APY, has a $1 minimum balance

4. Alliant Credit Union, federally insured by the NCUA – 0.55% APY, has a $100 minimum balance

5. LendingClub Bank, Member FDIC – 0.60% APY, has a $2,500 minimum balance

6. Synchrony Bank, Member FDIC – 0.50% APY, has a $0 minimum balance

7. Comenity Direct, Member FDIC – 0.55% APY, has a $0 minimum balance

Which type of savings account will earn the highest interest?

If you are looking for a new place for all of your savings then you may want to consider all the different types of savings accounts that could help you earn higher returns for your savings. All of these accounts come with their own set of benefits and in general, are offered by many different banks both online and from traditional banks. 

1. High-Yield Savings Accounts

High-yield savings accounts usually have much higher APYs than normal savings accounts and usually have FDIC protection. This means that not only will you be able to earn a higher amount back than you would with other accounts, but you will also be able to rest assured in the fact that your money will be protected in these bank accounts. The one thing to remember if you choose an online high-yield bank account is that you will need to make the transfers from another bank account as you won’t be able to deposit cash directly into that account. 

2. Certificates of Deposit (CDs) 

Certificates of Deposit (CDs) are available through most online and traditional banks as well as through some credit unions. CDs are also FDIC-insured, and they usually offer higher interest rates. The one thing that you will need to consider with CDs is that you will need to keep your money into your account for a specified amount and as such you will not just be able to withdraw any amount you want whenever you want. The most popular CD maturity periods are six months, one year, and five years, so when choosing your CD, you will need to decide on the maturity period. 

3. Money Market Deposit Accounts

Through your bank, you may also be able to get a money market deposit account. These accounts usually require a minimum initial deposit and balance and they also have a limited number of monthly transactions that you can conduct on these accounts. As these are bank accounts offered by your bank you will also have your money market deposit account be FDIC-insured. 

Do you pay taxes on a high-yield savings account?

If your high-yielding savings account is making you more than $10 in returns then you will be required to report that in your annual tax return. Normally the 1099-INT tax form needs to be used to disclose all of your earnings from your high-yield savings accounts. The interest is taxed under the income tax rate whether you keep it in your account or withdraw it. Certain accounts do not necessarily require that you pay taxes on the returns however the high-yield savings account offered by most banks is not one of them.

Are high-yield savings worth it?

If you want a secure way of having your money in the bank and potentially even making some money because of the high-interest rates then the high-yield savings account is worth it. In general, these accounts are used not by those who want to increase their wealth and multiple the money that they have in the bank, but rather they are used by those who wish to safeguard their principal. The FDIC insurance alongside the fact that these are savings accounts and not high-risk investments make this worth it if you want to keep your money safe while simultaneously potentially decreasing the effect that inflation will have on the buying power of your money. 

If you are looking to save money for a home deposit or to buy a home without a mortgage, then using a high-yield savings account could lead to you having further returns on your money and potentially getting to reach your goal much faster because of the higher interest rates. 

What is the risk with a high-yield savings account?

While excellent for those who want to put aside hefty amounts of cash, there are still a few risks that need to be considered when discussing high-yield savings accounts. These risks are not comparable to the risks of making investments with your money, especially because of the FDIC insurance the capital that you initially deposited in your high-yielding savings account will be safe, so at least in that regard, there is no risk. But still, they are some risks that you should be aware of before deciding to place all of your money in high-yield savings accounts

1. Interest rates fluctuate 

It is very common for interest rates to be variable and to change while time goes on. As a result, the advertised interest rate is not always the one that you will be receiving months or years later. This is something to remember if you want to keep on top of your savings account. 

2. Returns are taxable

As the owner of the high-yielding savings account you will be the one responsible for disclosing and paying the appropriate taxes. If you do not there is the risk of getting fined if it is found that you did not report your earnings to be fraudulent. If you file an amended tax return to fix not disclosing your earnings you may still be required to pay a penalty by the IRS.

3. Limit on monthly transactions

High-yield savings accounts normally allow a limited number of transactions per month. Usually, in most banks only six transactions can be completed per month from a high-yield account. Not abiding by those terms could lead to your account being closed.

4. Inflation

As your money is sitting in your high-yield inflation account you may find that it is losing its buying power. This is especially true in periods when there are high inflation rates. This means that while you are not losing money per se, you can buy fewer things with the money that you have saved up due to the inflation rate going up.

Where should I put my savings money?

Choosing where to put your money is a very important choice that will be affected by a variety of factors. The interest rates that you are hoping to have, your ability to make transactions, the taxation regime under which you will be depositing your money will all make a change in where you are going to deposit it. The following list will cover most of the bank accounts and bank products that people tend to use to store their cash safely.

• Checking accounts: These accounts have low-interest rates, but you are able to constantly make transactions. Most commonly these accounts are not used for saving money, but rather as a way of having disposable income readily available.

• High-yield savings accounts: These tend to have the highest interest rates and simultaneously they often require very low deposits and a very low balance. Sometimes, you can even maintain your account while having a $0 balance.

• Money market accounts: These accounts have very high-interest rates, but a limit on the transactions that you are able to make from them. There is also a high minimum deposit that you will need to make to get this account.

• Certificates of deposit (CDs): If you have money that you will not need to use immediately or that you can set aside for a specified amount of time, then these accounts are your best options as they can offer you the highest interest rates. However, if you are unsure of when you may need the money then these accounts are not a good choice, as you could end up paying high penalty fees if you withdraw money before the specified time is complete. 

 • Individual retirement accounts: For those wanting to save for retirement but do not have an employer-sponsored account, then these accounts are the best options. Interest rates for these can be relatively high and, on some occasions, returns are not taxed.

• Employer-sponsored retirement accounts: These are saving accounts where your contributions are matched by your employers. This can be a great option for those looking to save relatively large amounts for retirement.

Is chime a high-yield savings?

Chime has one savings option that is available and that is for a high-yield savings account. The savings rate for this account is 0.50% APY, which is fairly standard, and an amount offered by many different banks. What makes Chime a little bit more unique is that it has two savings options.

1. Rounding up to the nearest dollar

Whenever you use your Chime Visa debit card the amount you spend will be rounded up to the nearest dollar. The rounded-up amount will then be transferred to your savings account.

2. Automatic transfer

With Chime, you can also set up an automatic transfer for an amount to go into your savings account every time you get paid. 

These two options can make it fast and easy to save money, without having to do excessive maths or budget every single dollar. 

How much money can you have in your bank account without being taxed?

Normally, you are not being taxed for the amount of money that is in your account with high-yield savings accounts, but rather you are taxed for the returns that you are gaining because of the interest rate associated with your account. Returns are taxed under the income tax category and as such the amount you will need to pay on taxes will depend on the state that you are in. 

In many states the money that you deposit into these accounts is not taxed: 

• Tax-Advantaged Retirement Accounts
• Individual Retirement Accounts (IRAs)
• Traditional IRAs
• 401(k) Plans and Other Similar Savings Accounts
• Flexible Spending Accounts
• Health Savings Accounts
• Education Savings Accounts
• 529 Accounts
• Coverdell Education Savings Accounts
• Municipal Bonds
• Permanent Life Insurance

Summary

Choosing a high-yield account to put your savings in can be the perfect middle ground between investing it or keeping it in a normal savings account. FDIC insurance also makes it more likely that your money will be safe no matter what occurs. Choosing the right account for yourself can be tricky as you will need to assess the interest rates that you would like to receive and the minimum deposit that you are willing to maintain in your account.