Gone are the days when even the highest-yield savings accounts were paying next to nothing in interest.
The Fed has raised its target interest rate 5.25% since March 17, 2022. As such, savvy Americans have paid closer attention to the bank with which they choose to deposit their savings.
It’s been a great time for comparison shoppers and those who shun the Big Four in American banks in favor of the best high-yield online savings accounts.
But how much aggression is too much? When does hopping from one gilded lily pad of a savings account to another in search of a temporary bit of extra yield not worth it?
That’s what a listener of the Clark Howard Podcast recently asked.
Should I Chase Yield By Opening New Online Savings Accounts Every Time a New Bank Raises Rates?
Is it worth re-shopping my savings account every month to chase the highest interest rates?
That’s what a listener asked on the July 27 podcast episode.
Asked Isaac in Virginia: “I have been using high-rate online savings accounts for a while now (I’m currently using PayPal’s high-yield savings, at 4.30% APY).
“I notice often the bank that offers the highest rate varies from month to month. Is it worth shopping around and opening new accounts with the higher-yield banks? Or do the security concerns of having too many savings accounts make it not worth it?”
Clark isn’t too concerned that opening too many savings accounts will expose you to much higher risk in terms of your personal information. But you can drive yourself crazy trying to stay in the highest-paying savings account every week.
“The hassle factor just isn’t worth it, Isaac,” Clark says. “With any savings account or money market account, the interest rate can change daily.
“PayPal’s savings may only change once a month, but there’s no reason they couldn’t change daily like so many others do. You’re earning 4.3% right now. That’s a pretty good rate on idle cash.”
If you want to make more than 4.3%, look at Fidelity or Vanguard, Clark suggests. For example, this Vanguard money market fund is currently paying greater than 5% interest.
Clark has been keen on keeping your idle cash with one of his favorite investment companies lately, and especially those two options.
Why You Should Pay Attention To More Than Just Interest Rate
I wrote and maintain our best savings account story that I linked to in the intro section of this article. I’ve researched many dozens of banks to select the best high-yield options.
Each time, especially recently, I get a fairly high volume of correspondence. It’s typically something like this: What about Bank XYZ? It has a higher interest rate than some of the banks on your list. Why isn’t it on there?
There’s a tendency to focus only on the interest rate when evaluating the best high-yield savings accounts. Especially now that some options are paying 5% or more.
It is true that when it comes to savings accounts, interest rates matter a lot. But in this current era, most people tend to completely ignore everything else, which I think is a mistake.
Hidden Problems That Some High-Yield Savings Accounts Pose
Many of the banks I’ve researched (or re-researched at the request of someone wondering about them) are squeezing out a few tenths of extra yield by cutting corners elsewhere.
It’s one thing to do that by being online only and not operating any physical branches. Clark is a fan of that model, as it passes along savings to the customer.
However, a lot of lesser-known banks are making it to the top of these lists of the highest-yield savings accounts by:
- Offering non-existent customer service
- Delaying the availability of your funds in order to make extra interest themselves
- Charging exorbitant fees
- Offering poor websites and apps
- Instituting some strict rules including deposit minimums and average balances
- Denying you interest for the month if you pull out your money before a certain time
Some banks offer promotional rates to boost their deposits or commit multiple fouls among the list above. It’s part art and part science when evaluating these savings accounts. And it often involves digging through legal disclosures and customer review sites.
When Should You Consider Ditching Your Savings Account for One With a Higher Rate?
Sometimes there are good options that leapfrog each other in terms of rate. In that case, you have to ask yourself a few questions in my opinion:
- Do I have enough money in my savings account(s) to make it worth it to switch for an extra 0.1%, 0.5% or 1% interest? How much extra money in interest does that represent per year for me? (Use our savings calculator to find out.)
- Am I going to keep track of the interest rates closely enough to know when my current savings account of choice no longer is the most competitive among the good options?
- How often am I willing to move my money to a new savings account or even open up a new savings account with a bank I’ve never worked with?
For most people, picking one or two of the best long-term options and sticking with it is the easiest and best choice. And checking a few times a year to make sure it’s at least competitive and that there aren’t overwhelmingly better options.
When should you switch savings accounts to chase higher yield? That’s a personal question that likely depends on your financial circumstances and your personality.
However, even with much higher interest rates than in recent years, it’s easy to focus so much on the rate that you ignore negative factors that can potentially offset the difference in yield.
And you also have to be realistic about how often you’re willing to switch to a new savings account and what the potential reward is for you.