Shopping around for better savings account interest rates? You might be tempted to close your current high-yield savings account (HYSA) and move your money to a new one offering a higher APY or better perks.
But before you close your account, it’s worth asking: Should you actually shut down your old HYSA, or simply open the new one and keep both? The answer depends on factors such as fees, account requirements, and how you manage your savings goals.
Keeping your existing high-yield savings account can have a few practical benefits. Before you close the old account, consider these perks you could gain by keeping it open.
If you want to save money for more than one financial goal, having multiple savings accounts can help keep your savings separated and make it easier to track your progress.
For example, let’s say you want to take a family vacation this winter, but you’re also saving for a down payment on a house next summer. Keeping the vacation and down payment funds in separate HYSAs will help you avoid overestimating how much you have saved for each expense, and it will prevent you from accidentally spending your down payment funds on your vacation.
Depositing your money into multiple HYSAs can give you more protection in the event your financial institution fails.
Federal deposit insurance guarantees your funds up to $250,000 per depositor, per institution. So if you have more than $250,000 in savings, it could be a strategic move to spread the money across multiple accounts at different banks or credit unions.
Read more: How to insure deposits over $250,000
Some HYSAs have “rate tiers,” meaning they have different interest rates that apply to different amounts you have on deposit. For example, you might earn 3% APY on the first $50,000 you deposit to the account, and 1% on every dollar over that amount.
If you have a HYSA with rate tiers, spreading your money across multiple accounts could help you earn more interest.
A HYSA can serve as a form of overdraft protection. If you link your HYSA to a checking account, the bank can draw funds from the HYSA to cover overdrafts from your checking account. However, this only works if both accounts are at the same bank. So when you open a HYSA at a new bank, you may want to leave some money in the old account where your checking account is held.
Does your old HYSA have an account closing fee? It’s worth finding out before you close the account.
These fees usually apply if you close your account within a few months of opening it. For example, BMO charges $50 if you close certain accounts within 90 days of opening.
Paying the fee could mean losing all the interest you’ve earned, so instead of closing your old account right away, you may want to give it some time.
For most people, the most practical approach will be to close the old HYSA within a month or so of opening the new one. Here are some reasons to shut down the old account.
If you have no specific use for the old HYSA, it’s best to close the account. You might be tempted to leave it open and ignore it, but that’s a risky thing to do.
Let’s say, for example, an unexpected overdraft charge comes through from your linked checking account. If this happens, you could incur a bill and interest charges without your knowledge. Then, if the bill goes unpaid, the account could be closed by the bank and reported to ChexSystems, making it difficult for you to open new bank accounts in the future.
Instead of taking that risk, close the account on your own terms and avoid unwanted financial issues.
If there are monthly account fees on the old account, it’s probably worth closing, especially if they exceed the interest you earn. On top of monthly fees, you’ll also need to pay attention to other penalties. Some banks charge a fee if you drop below a minimum deposit, or if you carry a $0 balance.
It might sound counterintuitive, but there is such a thing as having too much money in savings.
Savings accounts are built to hold your emergency fund, and your savings for purchases you plan to make within the next couple of years or less. For anything beyond that, your money is better off somewhere else.
Instead of leaving your spare savings in the old HYSA, consider moving it to a CD or Treasury bill, where it can earn more interest. If you don’t need the money for the next few years or more, consider a higher-earning, longer-term investment like your retirement account.
Read more: How to close a bank account: A step-by-step guide
Moving your money to a HYSA at a new bank can be a bit tedious. Here’s how to go about it the right way, so you can avoid losing money or incurring unnecessary fees:
Choose an account: Compare multiple accounts to find the best HYSA based on account fees, interest rates, and access to the bank.
Apply for an account: Follow the bank’s instructions to apply for an account. You usually need to provide your Social Security number, a copy of your photo ID, and a utility bill or other proof of your address.
Deposit money: Next, you’ll need to fund the new account. This can often be done by transferring money from another bank account or sending in a check. Be sure to pay attention to any minimum deposit requirements or balance limits so you can avoid fees.
Update your automatic transactions: Before closing the old account, update any automatic payments or deposits and ensure all of these transactions are rerouted to your new HYSA.
Wait at least 30 days: Take at least one month to monitor the old HYSA and make sure there aren’t any transactions going through. During that time, it’s a good idea to leave a cushion of money in the account to cover any unexpected charges. Once you’re sure the account is dormant, withdraw the remaining funds.
Close the old account: Contact your old bank and follow their instructions to close the account. The bank may require you to send a request in writing. Be sure to get a confirmation note from the bank and keep it for your records.
Read more: How to switch banks
