Updated on 09.09.14

The One Hour Project: Open A High-Yield Savings Account (And Maybe An Investment Account)

Trent Hamm

One big thing that you can do that can kick your finances into gear is opening up a high-yield savings account. Many banks now offer online-only savings accounts that offer very nice interest rates, often far exceeding the rates of return you can get from your local brick and mortar bank. HSBC Direct, the online version of HSBC, for example, is currently offering a 5.05% APY account, and ING Direct has a brilliantly simple and intuitive interface that holds a 4.3% APY savings account. Both of these likely decimate what you can find at your local bank – and you can manage the account straight from your computer.

If you maintain any savings at all – or are even thinking about starting – a high-yield online savings account is worth getting. It takes a bit of time to sign up – and you have to have a checking account to link the new savings account to – but once you’ve done that, it’s all about the savings.

Finding the Right Savings Account

Which bank should I use?

I generally point people to ING Direct for starters – not only because it’s the bank I use, but because their interface is brilliantly simple to use. Other banks offer higher rates, but ING is probably the best choice for getting used to online-only banking. You can research other great savings account options here.

Once you have the account set up, it’s worthwhile to set up an automatic savings plan. It pulls out a specified amount from your checking to your savings on a regular basis – usually weekly or monthly, but you can set up about anything you imagine. So, you could set it up to pull out $50 from your checking to your savings every week, or the day after you receive a paycheck. That money then hides away until you need it, earning a 4-5% interest rate.

What about after that?

Once a person has their high-interest debts paid off and has some significant money in savings, I usually recommend that they begin investing in low-cost index funds. It’s a great way to start dipping your toes into stock investing without getting buried in fees, and it’s easy as pie – you deposit some money with a brokerage, tell them what fund you want to buy, and they do the rest for you. When you want to sell them, log in and sell them.

Again, I almost always point people who are just getting started towards either Vanguard (my favorite, and where I keep my investments) or Fidelity. Both offer a large array of low-cost index funds for investing, and signing up for an account at either one is quite easy. I consider them to be the cream of the crop for people wanting to buy low-cost index funds and just sit back and watch them grow, but be aware that many of the good funds at both businesses have a high minimum. Most of the Vanguard funds require $3,000 as an initial investment, but their fees are so low that it’s worth it – just save your money in that high-interest savings account.

In fact, that’s a good way to do things. Deposit a small amount each week into a high-yield savings account, then eventually use the money in there to invest. It’s actually exactly what I do – I deposit a sum into an online savings account each week, then use that money for investments. Right now, I’m actually buying into a diversity of Vanguard funds using this approach so that my investment is diversified – later, I’ll use that same plan to keep the portfolio balanced.

There’s no better time than right now to get started – so why not spend an hour and get the ball rolling?

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  1. Andrew Stevens says:

    Trent, I’m afraid you’re behind the times. HSBC went down to 4.5% about a week ago. I opened an E-loan account some time ago when it was paying 5.5%. It went down to 5.25% a few months later and just went down to 5.00% after the rate cut. I’m waiting to see if the other shoe will drop on those accounts still paying 5.31% before I decide whether to switch accounts. Right now, I’m still happy with E-loan since there’s nothing a lot better, but you can definitely do better than HSBC or ING.

  2. Susy says:

    Good post, I’ve been trying to get my mom to do this for a long time! I’ll have to point her to this website!

  3. Leslie says:

    I have had a number of different savings accounts at ING for a few years now (from back when ING had the top savings rate out there). They aren’t quite as high as other savings rates out there anymore but I am happy with their service, interface etc. so it is not worth switching to me to chase a little bit higher rate at this point.

    I have my savings at ING split into my emergency fund, my house tax fund, my christmas fund etc. Moving from my regular bank to ING for savings was one of the smartest things I have done. I am considering moving my checking account there too but can’t quite give up having a branch to walk in too (not that they have ever been particularly helpful).

  4. JReed says:

    TRowe Price is another mutual fund family worth looking at…low managemant fees and easy to invest and track. We use their target retirement year funds for our Roths. We are self employed (no 401K match) so we fund our Roths first because I think the lowest tax rate will be going up by the time we retire…this country cannot sustain the baby boom SS, medicare and budget deficit repayment without raising taxes in the future. I’d rather pay 15% now than 20% in the future as I will need to withdraw in order to meet monthly expenses.

  5. GK says:

    I second ING direct as my wife and I both have checking accounts (without the checks, of course!) for our personal fun money. But index funds? Index funds never actually meet let alone beat their actual indexes. Much better are ETF – the perfect mix between an index fund and stock. Plus they can be bought a share at a time or, if you use ShareBuilder or Zecco you can even buy fractional shares – so no crazy $3000 minimums like at Vanguard, etc.

  6. Swamproot says:

    I believe there are also options with some of the investment places that allow you to not have the minimum to invest if you commit to a monthly contribution to it. T. Rowe Price has this option I think, but I’m not sure if it is only for retirement accounts.

  7. Margaret says:

    Check your regular bank. RBC (at least in Canada) now has an e-savings account, and the interest rate is a little higher than at ING (which is lower here than in the States, it seems). If you already have online banking with RBC, it is really easy to sign up. There are no fees for transfers between it and your regular chequing account, and the transfers are right away (although maybe the holds involved in transferring to/from ING are a good thing for some people). It is more convenient for me than INg. The downside is that there are lots of quite high fees if you do anything other than transfer money between RBC accounts, but since I am using it strictly for savings, that doesn’t matter to me.

  8. Brian says:

    Another advantage to ING is that is a friend refers you and you open an account for at least $250.00, they end up getting a $25.00 bonus and you get $10.00 deposited into your account.

    Like Leslie, I have several ING accounts to save for specifics things such as Christmas, Birthdays, Home Repairs, Real Estate Taxes, New Car purchase, etc.

    Love the simplicity of ING

    And another T Rowe Price advantage is that you can invest with only $50.00 per month automatic investments that make is easier than amassing the $3,000.00 minimuns for Vanguard(although Vanguard is great if you can afford it).

  9. gregor says:

    Very informative post, but since i’m living in germany the banks are not offering this service here.

    Does someone know a nice alternative for germany?

  10. infix says:

    For those chasing higher yields on their savings accounts consider the demise of NetBank as a cautionary tale. There’s a reason some banks are offering higher rates: they need your cash because they’re taking heavy losses on Subprime and Alt-A mortgages. Even ING came out the other day and admitted they have a $28Billion exposure. I’m pulling back from ING and going with local credit unions which tend to be much safer. Yes their yields are lower, but they’re generally safer.

  11. RDH says:

    @inflix re: NetBank Failure

    I’m browsing this a few months late, but I want to point out that the failure of NetBank is not really a reason for the average reader to shy away from ING (or any other FDIC-insured bank). Generally speaking, your insured deposits will be covered by the FDIC up to $100,000 per institution in the (very rare) event of a bank failure. [note that this doesn’t apply to mutual funds, bonds, etc]

  12. Patrick says:

    Care to update this post based on the current rates? Also, what do you think about Schwab?

  13. ylfoo says:

    Hi Trent, care to share whether ING Direct is applicable for people outside US? Anyway ING Direct seems very simple but yet a useful platform for High Yield Savings.


  14. chris says:

    For a high interest online savings account. I went with venturebankdirect.com. They are currently offering 3.8% APY with no minimum balance.

  15. Marcus says:

    Thanks Chris, I checked out venturebankdirect.com and have been very happy with them. They are in the process of adding an online checking account to their offerings as well.

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