What to do with a surplus of cash? Is a high interest rate savings account better than a standard savings account? 

As U.S. financial  statistics indicate that savings account balances are up better than before the Great Recession. Now that Americans are holding onto so much cash, the prudent approach to stretching one’s s dollar is to stockpile cash into a high interest savings account with a financial institution, protected by the Federal Deposit Insurance Corporation ( FDIC).

The FDIC backs deposits up to $250,000 per account holder at a bank. In the event of a failure, the depositor is guaranteed not to withstand any losses. 

One percent interest far exceeds earning 0.00% on money collecting dust in your savings account. Even if one earns a measly $69 a month, this is dinner once a month or at least a $828 annual gain for doing nothing. 

5-Approaches to Protect Your Assets with a High Interest Rate Savings Account

• But before one subscribes to the high interest savings account, the first critical step to safeguarding funds is to evaluate the financial rating of the bank. A primary lesson learned from America’s financial meltdown is to always evaluate each institution’s financial stability. AIG and Lehmann Brothers exemplify that no bank “is too large to fail.” 

Although Capital One Financial recently acquired ING Direct, an institution renowned for its no fee-high interest rate savings accounts, a news report, published by Reuters (June 17, 2011) says that Moody’s just issued a review of Capital-One’s financial stability  for a  potential downgrade.

• Don’t place more than $250,000 in a high savings account with one financial institution. Since the FDIC insures the aforementioned amount, reserves–exceeding that amount, may not be covered in the event of another financial meltdown. 
• Although the objective of opening a high interest rate savings account is to yield the highest return, be leery of any financial institution offering more than one percent. 
• Also, note that many banks offer high interest rate savings accounts to lure new customers. Many of these high interest rate savings accounts are introductory  or riddled with maintenance fees and charges.

Fees and the number of withdrawal allowances represent another area to evaluate before subscribing to a high interest rate savings account. Some banks impose fees and penalties for withdrawals.

To deconstruct the high interest rate savings accounts, High Interest Savings compiled a fact sheet:

• Maximize gas mileage, by keeping tires on the proper inflation.

• Shop for a high interest savings accounts, where funds are electronically transferred from the paycheck into the savings account.

• Regular automobile tune-ups can minimize major car repairs, requiring vehicle owners to dip into their high interest savings account.

• The average car wash costs anywhere between $5 and $15. By washing one’s car by hand, that’s more than a $60 savings per year.

• Decrease energy consumption around the home.  By turning down the thermostat five to ten degrees below the normal temperature, actualize a savings of at least 10 percent a year–another savings opportunity with worth an annual savings of $75.

• Using a mason jar or other similar sized receptacle (piggy bank), discard all extra change into the jar. Try to fill up the jar monthly to deposit into the high interest savings account.

• Practice financial prudence by avoiding overdraft fees.

• To reduce the chances of overspending, set a weekly budget that accounts for transportation, food and other personal necessities. Then, store all credit and debit cards in a safe place, alleviating  the temptation to exceed the financial plan. 

• In the end, the only way to maximize savings is by setting realistic monthly goals. Since  high interest savings accounts fluctuate based on inflation, be sure to check the yield of your high interest savings account on a regular basis to assure that you’re attaining the best return on the savings’ investment.  

Unlike the fixed rate certificate of deposit, which takes longer to mature and does not  have the monthly withdrawal features of the high interest rate savings, some financial analysts recommend a liquid certificate of deposit, where certain funds are d

However, since many high interest rate savings accounts share some of the same features as the certificate of deposit, compare the following: 

• The APR
• The minimum balance requirements
• Transaction fees

For example, Discover card offers both a CD and high interest savings account; however, the APR is a  quarter percent higher on the certificate of insurance than the high interest savings account. Generally, CDs have a higher yield than high interest savings accounts.  

Be sure to compare the high interest rate savings at well known institutions, such as: 

• Discover
• AIG
• American Express
• Bank of America
• Capital One
• HSBC

Additionally, be sure to shop  around for the best high interest savings account. Most accounts include the following features and requirements: 

• Up to $250,000 per depositor, per account Insured by the Federal Deposit Insurance Corporation (FDIC)
• Has a direct deposit
• Allows up to six maximum withdrawals per statement cycle.
• Interest is compounded daily and accrued on a monthly basis.
• Returned deposits  due to insufficient funds carry a $5 surcharge 

Unlike the certificate of deposit (CD), which imposes a penalty for withdrawals prior to maturity of the CD that can ultimately lead to loss of the deposit,  a high interest savings account does not accompany any  of these stringent rules. Nevertheless, the high interest rate savings account is ideal for the consumer, who has the discipline to limit withdrawals.

• Reliability
• Online security
• Good customer service
• The highest interest rates

Is the bank reliable? If you’re shopping around for a high savings account to save and grow your hard earned cash, make sure that the financial institutions is not only financially secure. Investigate whether the bank is on the federal government’s “most troubled bank” list. 

Does the bank provide good customer support? Finding a viable online banking institution rusting the well being of the high interest savings account includes the ability to rely on professional customer service. Given today’s technological independence, certain financial institutions consider voicemail to be the end all be all to quelling consumers concerns. On the contrary, opt for institutions providing expert and reliable customer service.

Does the high interest savings account have the appropriate online safeguards?  Major security breaches have been a growing concern. Since the United States government has been hacked, financial institutions are just as vulnerable. Information security experts contend that individuals who do paperless banking are less prone to identity theft and fraud. Prior to finalizing the high interest savings account, be sure to investigate the online bank’s security statements and provisions. 

Will the high interest savings account pay the dividends it touts? Some banks have a solid history of  offering a high interest rate and overall liquidity. Compare four to five different high interest savings accounts for the highest yield.

Does the financial institution conduct transactions on a virtual capacity?  

Finally, compare brick and mortar branches (i.e. ING and HSBC) fees and service advantages to online high interest savings account services.

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How is the rate of the high interest savings (HIS) account assessed?

From bank to bank, the policies vary. Certain banks allocate different interest rates, depending on the amount of the savings fund. For the consumer, who does not have significant assets, it’s in your best interest to shop around for  high interest savings account that is not tied to the sum of the savings.

What are the minimum balance requirements?

Certain banks have minimum balance requirements. For the consumer, who has more than the minimum, the balance requirement is not an issue.

Are there any charges for monthly service fees?

Since the wake of the financial crisis, some banks and financial institutions are charging monthly service fees for “administration” purposes.

What are the penalties for balances falling under the minimum requirement?

It is common for banks, requiring set balances to impose fees on high interest savings account that fall below the minimum. However, a few financial institutions do not charge fees. Therefore, it’s feasible to shop around for an HIS without any fee requirements.

How is the rate of the high interest savings account assessed?

From bank to bank, the policies vary. Certain banks allocate different interest rates, depending on the amount of the savings. For the consumer, who does not have a significant savings, it’s in his or her best interest to shop around for the highest yield for their savings account. 

What are the policies for making transfers?

Five to six monthly transfers are the limitations at many financial institutions. Nonetheless, the high interest savings account is not the type of savings vehicle intended for rampant withdrawal transactions.

In case the high interest savings account turns out to be unfitting for your financial situation, be sure to inquire about account cancellations. Some banking institutions charge a fee for closing an account.

Repetitive Withdrawals

High interest savings  (HIS) accounts are not advisable for individuals, who are need to make perpetual withdrawals each month. Since banks are authorized to impose fees for withdrawals, easing the arbitrary limitations, a HIS is suitable for the individual, who adds funds on a regular basis.

Accountholders with fluctuating savings balances are generally an awkward fit for the high interest savings account holder. All banks require a minimum account balance. Accounts with insufficient balance requirements are subject to fee penalties.

Deposits over $250,000

The high interest savings account is not recommended for the saver who has more than $250,000. Since the Federal Deposit Insurance Corporation  (FDIC) is insuring deposits up to $250,000, any excesses would not be backed. As a result, divvying up the money and placing them into separate banking institutions, may potentially protect one’s savings from unusual investment market events. However, the FDIC plans to roll back the standard insurance coverage to $100,000 on January 1, 2014.

High Interest Saving Tip: Compare the following terms of service and provisions:  

• ATM Card Replacement – Mishandling
• ATM Deposits
• ATM Withdrawals
• ATM/Online Fees
• Bill Payment (online or by telephone)
• INTERAC Direct Payments
• International ATM Withdrawals
• Personalized Checks
• Personalized checks
• Preauthorized debits

 For additional resources about high interes savings  accounts, be sure to bookmark this site and post your financial questions below.

Shop around for a high interest savings account.  Compare rates offered at major financial institutions to small banks. Bear in mind that the caveat involved with the high savings account is that if the economy weathers inflation, the value of your savings account may hindered.

Set the savings budget. There’s no need to wait for the annual bonus to fund the high interest savings account. Establish a daily, weekly and monthly budget. Try to reduce costs two to five percent to allocate regular deposits to the high interest savings account. Also, add any extra cash windfalls, multiplying interest savings to earn dividends. 

Turn sales into opportunities to save. Incentivize the desire to purchase bargains and cut costs, feeding the nest egg with the amount saved from each trip to the grocery store, shopping spree– ultimately setting aside substantial cash reserves. 

Stay on target. Don’t be tempted by associates, who seem to be on a spending bender. Exercise financial control, adhering to your financial plan to make regular deposits. 

Open a high interest savings account at a bank backed by the Federal Deposit Insurance Corp. (FDIC).  Until Dec. 31, 2013, the FDIC will insure accounts with up to $250,000. (In 2014, the standard insurance amount will revert back to $100,000).

Where to find a high-interest savings account? Online high interest saving products are in ample supply. Remember to evaluate the terms and yield of any savings account, as they tend to be capricious in nature.