I've been seeing a lot of posts about interest rates from high yield savings accounts from online banks. What is a common way people are handling these accounts? Do you have a checkings account from a real bank for direct deposits and atm withdrawals? Do most people just transfer a chunk of each paycheck to a high yield savings account and just not touch that money to earn interest? Why keep money in one of these accounts instead of investing in stocks? Can you pay off credit cards from high yield savings accounts or would you have to transfer to checkings first?

Would a general finance strategy be to have a ...
checkings account from regular bank for direct deposit and atm withdrawals

savings account for short term savings (money you can spend but want to earn interest on)

investment portfolio for long term savings and retirement

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Werewolfdad t1_ja8x16n wrote on February 27, 2023 at 6:41 PM

Banks and CUs: https://www.doctorofcredit.com/high-interest-savings-to-get/amp/ https://www.reddit.com/r/personalfinance/wiki/banks_and_credit_unions

84740296169 t1_ja8wtdp wrote on February 27, 2023 at 6:39 PM

I do everything at one Online Bank. I don't handle cash very often though, so it works for me. If I ever need cash, I just got to any ATM.

Then have a brokerage for retirement savings and non-emergency fund savings.

1955photo t1_ja8x8jc wrote on February 27, 2023 at 6:42 PM

I have a local bank checking account so I can get cash occasionally. My main checking and savings are at an online bank (Capital One.). My investments are at Vanguard.

Stock-Freedom t1_ja8xhvu wrote on February 27, 2023 at 6:43 PM

Follow the flowchart.

My generic advice:

https://i.imgur.com/lSoUQr2.png

Here is the flowchart from the r/personalfinance subreddit’s Prime Directive. If you follow that, you will be ahead of almost all of your peers.

Stop by the sidebar to see the Common Topics, which include basic money handling and investing.

You don’t need to talk to anyone or buy some random book to do this. You have all the tools right here.

AutoModerator t1_ja8xhyf wrote on February 27, 2023 at 6:43 PM

I love the flowchart! Here's the wiki page with more context and information.

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Missus_Aitch_99 t1_ja8xzqr wrote on February 27, 2023 at 6:47 PM

Online-only banks are real banks. They just don’t have storefront branches, which saves them a fortune in expenses, and therefore they can pay higher interest rates.

I have checking at a bank with branches local to me, plus I have a couple savings accounts at online banks. I’ve linked them, so I can transfer between checking and savings in a couple of days.

You can’t set up bill pay directly from savings, and they’re limited to six withdrawals per month, so yes, you would transfer money to checking and then pay bills from there.

Fubbalicious t1_ja9gciw wrote on February 27, 2023 at 8:42 PM

I use my online bank for most of my banking needs. I can do pretty much the same thing with an online bank as with a brick and mortar bank, but without being nickeled and dimed on everything such as having minimum balance requirements, fees for checking, fees to externally transfer money, while also earning higher yield interest (eg. .01% at most major banks vs 3.5% or more with an online bank). Most online banks now no longer charge overdraft fees and may even provide free paper checks. The usual con with online banks is obviously the lack of physical branches. But depending on the online bank, you may still be able to deposit cash (eg. Discover, Alliant Credit Union and CapitalOne allow that) as well as wire money and get cashiers checks. However, I still keep an account at a local bank (luckily with no fees or minimum balances) for the rare instances where I need in branch service. For example, while I can deposit cash into my online account via ATM, I still prefer to do large cash deposits with a human teller just to avoid an issue of getting my money eaten. I also prefer a human teller when wiring money to avoid issues. Or most recently, requiring a medallion signature guarantee when opening a Treasury Direct account.

As for keeping money in these accounts versus investing, the advice on this sub is to only keep as much cash as you need. So basically this means keep any money you will need in a 5 year or less time frame in something safe and liquid like a high yield savings account, while investing the difference. The reason is that the market is volatile and you do not want to be in a situation where you need the money now but due to a market dip, you now have less than when you started. Based on past historical market crashes, it's taken around 4+ years for stock prices to return thus the 5 year rule.

As for safe liquid savings, those don't necessarily have to be in high yield savings, but HYS is the most liquid. If you want to min/max your cash savings and don't mind the extra friction to access it, you can earn more interest by buying T-Bills, CDs and iBonds or signing up for new account bonuses. I typically layer my cash savings. Emergency funds stay in HYS or Money Market funds since they can be access/liquidated immediately. iBonds older than 12 months are also very liquid, but you lose the last 3 months of interest if cashed out before 5 years and are completely unavailable for the first 12 months. New account bonuses, CDs and T-bills bought through a brokerage can be accessed sooner their their mature date but usually involve losing your interest if accessed sooner.