Debating Ditching “High Interest” Savings Accounts

I have a confession to make. I am no longer sold on the merits of high-interest savings accounts.

The main draws of high interest savings accounts are:

  1. Higher interest rates than at your brick and mortar bank or credit union
  2. Easy to open sub-accounts
  3. More difficult to access your money (can take 2-3 *business* days)

Ally ‘s currently posted rate is 0.89% and this fluctuates constantly. ING Direct’s rate is currently 0.80%. The institution where I have my checking account is lower than that (somewhere around 0.55%), but how much do we and should we pay for convenience/annoyance?

For example, I have a rewards checking account in which I keep a certain level of savings. I use a spreadsheet to track which “sub-account” in my checking account has what balance and gets what amount of interest each month. I’ve done the calculation and I would actually earn more interest by keeping about $30,000 in this checking savings account than in one of Ally’s accounts.

My local institution also makes it super easy to open sub-accounts online and I can even rename them, just like I can with Ally or ING! It is not annoying to access the money – it transfer instantly to my checking account.

For a lot of people, having their savings accounts at an institution separate from their checking account is a good thing. But for me? It’s just plain annoying. It makes paying the visa bill for vacations annoying – I can’t just transfer money from my savings account to my checking account and write a check. Instead, I wait 2-3 *business* days for the funds to show up in my checking account. I’m not any more liable to spend the money if it’s at my local institution than I am with it off at Ally or ING.

I’ve already transitioned my vacation savings account to my local institution. (I did this a few months ago.) It never builds up higher than $3,000 before I take a vacation, so dealing with annoyances for small amounts of change and interest is a huge pain. I’m debating (er, strongly considering) doing this with my vehicle replacement (2020) and house down payment funds as well.

Readers, are you with me on ditching high-interest saving accounts?

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6 thoughts on “Debating Ditching “High Interest” Savings Accounts

  1. My “high interest” account is no longer high interest (it’s lower than the CU account). I have about $800 in it. I’m not really sure why I still have it. It’s linked to one of my stock accounts and sometimes I throw dividends from individual stocks in there, but I could equally easily throw them into my CU account (with the 3-4 day transfer). It is nice to have on hand if I need to fund something and need just a little more cash on hand… but I haven’t been in that situation in a LONG TIME.

    I actually have 3 savings and 2 checking accounts right now. I also have a “big bank” account that I keep about $4000 in. We use it for ATM withdrawals when we’re traveling, writing small checks, and making check deposits when we’re not near the CU.

    All three accounts have pretty lousy rates these days.

    • Considering my calculations indicating that keeping well over $30,000 in my dividend rewards checking account as savings earns more interest than sending the funds to Ally, I think I’m definitely going to keep all of my emergency reserves in my dividend rewards checking account.

      My CU actually does ATM refunds from ATMs at any non-CU ATM, which is amazing. So I don’t really need to worry about ATM refunds. The closest branch of my CU is a 1/2 block from work, so it’s quite easy to make check deposits when I (very rarely) need to.

      Right now, I use a dividend rewards checking account at one CU (with some of my savings in it for higher interest than an online savings account) and I have a couple of savings accounts at the same CU. The only cash savings I have at the moment is my emergency reserves and the funds waiting to be sent out on closing day on the condo. I think I’ll re-evaluate how I set up my savings accounts once I have a need to have more in cash savings than just emergency reserves. Technically, I suppose I could have taken the 3% earnest money deposit out of my emergency reserves until the money arrived in the transfer from Ally, so maybe it does make sense to push all non-reserves funds out to an online bank.

      There is something to be said for simplicity and consistency, keeping everything in one place though.

  2. My small town bank rolled out the most awesome savings plan ever. I had to jump through a few hoops to prove I was a loyal customer (like have X number of accounts with them, sign up for e-statements, etc.). But what I get in return is 3.5% on my savings account. Unbelievable! I’ll never go with an online savings unless they can pay me more or my bank withdraws this offer.

    • That bank sounds pretty awesome! I used to live near a credit union that offered savings rates at only 0.1% lower than the online banks, so it really wasn’t worth it to use an online bank. I wish I could find 3.5% on my savings account! :)

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