putting money in a HYSA - explain it to me like I'm 5?
December 30, 2023 1:01 AM Subscribe
I wish to move money from a regular checking account (either one at BofA or Chase, I have accounts at both) to a High Yield Savings Account. I have low financial literacy.
Assume I don't know anything about anything! How do I open the HYSA? Is it something I can do easily online or do I need a banker (?) or some sort of financial advisor/expert (?) to walk me through it in person? Do I show up at my bank or at one of those Charles Schwab places?
(Bonus for someone with extra patience: I'm also trying to start a Roth IRA and a traditional IRA, and similarly have no clue how to actually open these or move money to them).
Assume I don't know anything about anything! How do I open the HYSA? Is it something I can do easily online or do I need a banker (?) or some sort of financial advisor/expert (?) to walk me through it in person? Do I show up at my bank or at one of those Charles Schwab places?
(Bonus for someone with extra patience: I'm also trying to start a Roth IRA and a traditional IRA, and similarly have no clue how to actually open these or move money to them).
Yeah. You can open savings accounts online and initiate transfers from your checking account on the bank's web site or mobile app or whatever. It's very straight-forward.
posted by Alensin at 3:45 AM on December 30, 2023
posted by Alensin at 3:45 AM on December 30, 2023
This is absolutely something you an do easily online - find the website of the bank where you want to open the account (ideally something with no minimum balance and no fees), then click the "open account" button and the bank will walk you through the rest of it! You may need to share a photo ID (e.g. taking a photo of your driver's license with your phone). To transfer money from your checking account, you'll need your account number and your routing number. If you were able to sign up for MetaFilter, you can open a HYSA (assuming you didn't just spend your last $5 on MeFi).
If you'll be happier with a bank that has some kind of brick-and-mortar presence, Capital One has "cafes" and ATMs in some areas, or you may have a local bank or credit union that offers good savings rates. Besides CapitalOne I've also had HYSA accounts with SoFi and Discover, and they were equally easy to set up (although I think to get the max rate with SoFi I had to have direct deposit with them), and I've heard good things about Ally, mentioned above. Don't worry too much about optimizing your exact interest rate - if it's above 4% you're already way ahead of where you were.
Opening an IRA is exactly as easy, but you'll probably end up at a different financial institution. My favorites are Fidelity and Vanguard. Note that you do also have the opportunity to decide exactly how you want to invest the money in your IRA - deposits will be invested into a money market fund at first (this is very similar to a HYSA), but you can (and probably should) decide to invest in higher-yield, riskier investments("target-date" funds are easy and popular - like, if you're 30 and planning on retiring in ~35-40 years, you can pick the "Target Date 2055" fund).
posted by mskyle at 4:45 AM on December 30, 2023 [2 favorites]
If you'll be happier with a bank that has some kind of brick-and-mortar presence, Capital One has "cafes" and ATMs in some areas, or you may have a local bank or credit union that offers good savings rates. Besides CapitalOne I've also had HYSA accounts with SoFi and Discover, and they were equally easy to set up (although I think to get the max rate with SoFi I had to have direct deposit with them), and I've heard good things about Ally, mentioned above. Don't worry too much about optimizing your exact interest rate - if it's above 4% you're already way ahead of where you were.
Opening an IRA is exactly as easy, but you'll probably end up at a different financial institution. My favorites are Fidelity and Vanguard. Note that you do also have the opportunity to decide exactly how you want to invest the money in your IRA - deposits will be invested into a money market fund at first (this is very similar to a HYSA), but you can (and probably should) decide to invest in higher-yield, riskier investments("target-date" funds are easy and popular - like, if you're 30 and planning on retiring in ~35-40 years, you can pick the "Target Date 2055" fund).
posted by mskyle at 4:45 AM on December 30, 2023 [2 favorites]
Best answer: I've got high yield accounts at both Barclays and Marcus, and can attest to their extreme ease of use. Everything is entirely online and you can do it yourself.
The process for opening an account is you go to the website of the bank you want to use, finding the spot on the page talking about high yield savings, and clicking what should be a very prominent button that says open an account. Then you follow the prompts to get your new savings account set up.
The process for transferring money into your new account for the first time will be done with something they call penny tests. You will need to have both the account number for your checking account and the routing number (also called the ABA) to complete this step. The new bank will then make two transfer requests of your checking account bank for very small amounts (it will be something like 32¢ and 47¢ for example). Then you'll log into your checking account, note those two specific numbers, and type them in on a page in your new account where prompted. That validates to the new bank that you own the checking account you're linking and making a valid transfer. After that, transferring money will be a simple process.
Once your new account is set up, one thing I'd suggest you do is set up a direct deposit amount for your paycheck to go directly into savings. Your work should have a tool to accommodate this easily. Even skimming an extra $10 off your pay to go directly into high yield savings will add up over time. At this point in my life only direct deposit enough money into my checking to pay my bills + a little extra. Everything else I make goes directly into savings to make future phunniemee's life easier.
The process for opening an IRA will be very similar, but like mskyle says, you will need to make sure the money you transfer in is then invested in a fund so it will grow for you. Ant chance you have an old 401k account from some previous job you've had? A great way to open an IRA is to do what is called a rollover of that money into an IRA account.
If you want help with any of this you can memail me. I'd even be happy to walk you through some basic setup stuff on the phone if you think it'd be helpful. Personal finance is a fun hobby for me.
posted by phunniemee at 5:44 AM on December 30, 2023 [5 favorites]
The process for opening an account is you go to the website of the bank you want to use, finding the spot on the page talking about high yield savings, and clicking what should be a very prominent button that says open an account. Then you follow the prompts to get your new savings account set up.
The process for transferring money into your new account for the first time will be done with something they call penny tests. You will need to have both the account number for your checking account and the routing number (also called the ABA) to complete this step. The new bank will then make two transfer requests of your checking account bank for very small amounts (it will be something like 32¢ and 47¢ for example). Then you'll log into your checking account, note those two specific numbers, and type them in on a page in your new account where prompted. That validates to the new bank that you own the checking account you're linking and making a valid transfer. After that, transferring money will be a simple process.
Once your new account is set up, one thing I'd suggest you do is set up a direct deposit amount for your paycheck to go directly into savings. Your work should have a tool to accommodate this easily. Even skimming an extra $10 off your pay to go directly into high yield savings will add up over time. At this point in my life only direct deposit enough money into my checking to pay my bills + a little extra. Everything else I make goes directly into savings to make future phunniemee's life easier.
The process for opening an IRA will be very similar, but like mskyle says, you will need to make sure the money you transfer in is then invested in a fund so it will grow for you. Ant chance you have an old 401k account from some previous job you've had? A great way to open an IRA is to do what is called a rollover of that money into an IRA account.
If you want help with any of this you can memail me. I'd even be happy to walk you through some basic setup stuff on the phone if you think it'd be helpful. Personal finance is a fun hobby for me.
posted by phunniemee at 5:44 AM on December 30, 2023 [5 favorites]
Like others, I also set one up online and it wasn't too hard. I use American Express's HYSA.
posted by BlahLaLa at 9:42 AM on December 30, 2023
posted by BlahLaLa at 9:42 AM on December 30, 2023
Best answer: Assume I don't know anything about anything!
Two points beyond those made above:
a) you'll be taxed on the interest you make in a HYSA. This may be a bit of a surprise if you put a lot of money into a HYSA and don't plan for it. Say you save $10,000 for a year - that's (roughly) $500 interest these days, which will increase your tax bill by (roughly) $50 - $185. Fortunately, you'll never pay more taxes than the interest you make, but it is something you should be aware of.
b) IRAs need to be funded from earned income. Roughly, that means if you don't make money from a job (or self-employment) in a year, you can't contribute to an IRA. If you have a job (or self-employment), then you can only contribute up to the IRA max contribution, or however much you make in a year, whatever is lower. Say you make $5K in a year, you can contribute $5K, limited by your job income. If you make $10K in a year, you can contribute $7K in 2024, limited by the IRA max contribution.
posted by saeculorum at 10:03 AM on December 30, 2023 [2 favorites]
Two points beyond those made above:
a) you'll be taxed on the interest you make in a HYSA. This may be a bit of a surprise if you put a lot of money into a HYSA and don't plan for it. Say you save $10,000 for a year - that's (roughly) $500 interest these days, which will increase your tax bill by (roughly) $50 - $185. Fortunately, you'll never pay more taxes than the interest you make, but it is something you should be aware of.
b) IRAs need to be funded from earned income. Roughly, that means if you don't make money from a job (or self-employment) in a year, you can't contribute to an IRA. If you have a job (or self-employment), then you can only contribute up to the IRA max contribution, or however much you make in a year, whatever is lower. Say you make $5K in a year, you can contribute $5K, limited by your job income. If you make $10K in a year, you can contribute $7K in 2024, limited by the IRA max contribution.
posted by saeculorum at 10:03 AM on December 30, 2023 [2 favorites]
you'll be taxed on the interest you make in a HYSA.
Just to follow up on this, you will receive a form (1099-INT) from the bank where you have your HYSA that summarizes how much interest you got on the year. Whatever tax prep software you use should have a step where it asks you about this (or, if you fill out forms yourself, there's a line on the main form for interest income).
One note I would make on the IRA if you intend to open both a traditional and a Roth IRA: the annual contribution limit is shared between them. e.g., for 2024 the contribution limit is $7,000, and that means $7k total between both types of IRA, not $7k each. If you have an employer-sponsored 401(k) or similar tax-deferred plan (could also be 403(b) or 401(a)) then the standard recommendation is to only contribute to a Roth IRA. This is partly to diversify your tax advantages, but also because you may be limited in how much of your traditional IRA contributions you can deduct from your taxes. This depends on your income -- the limits kick in at a lower income if you have an employer sponsored plan than if you don't. If you can't deduct the contribution from your taxes then there's no advantage to contributing to a traditional IRA (vs. a plain old brokerage account, or a Roth).
posted by egregious theorem at 10:40 AM on December 30, 2023 [1 favorite]
Just to follow up on this, you will receive a form (1099-INT) from the bank where you have your HYSA that summarizes how much interest you got on the year. Whatever tax prep software you use should have a step where it asks you about this (or, if you fill out forms yourself, there's a line on the main form for interest income).
One note I would make on the IRA if you intend to open both a traditional and a Roth IRA: the annual contribution limit is shared between them. e.g., for 2024 the contribution limit is $7,000, and that means $7k total between both types of IRA, not $7k each. If you have an employer-sponsored 401(k) or similar tax-deferred plan (could also be 403(b) or 401(a)) then the standard recommendation is to only contribute to a Roth IRA. This is partly to diversify your tax advantages, but also because you may be limited in how much of your traditional IRA contributions you can deduct from your taxes. This depends on your income -- the limits kick in at a lower income if you have an employer sponsored plan than if you don't. If you can't deduct the contribution from your taxes then there's no advantage to contributing to a traditional IRA (vs. a plain old brokerage account, or a Roth).
posted by egregious theorem at 10:40 AM on December 30, 2023 [1 favorite]
One very specific mistake that a lot of people make with an IRA is transferring money in, but not investing it. It's basically a two-stage process: Put money in, the invest it by buying shares in a target-date fund or whatever else you want to do. You may be able to make this happen automatically for future automated transfers, but for the initial deposit (and possibly later ones), it's a very easy mistake.
posted by Tomorrowful at 11:59 AM on December 30, 2023 [3 favorites]
posted by Tomorrowful at 11:59 AM on December 30, 2023 [3 favorites]
You might find the r/personalfinance subreddit's wiki helpful, especially regarding your IRA questions.
posted by needled at 7:13 AM on January 2, 2024
posted by needled at 7:13 AM on January 2, 2024
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You can similarly open a Roth online, Schwab will absolutely do that.
posted by BungaDunga at 2:32 AM on December 30, 2023 [3 favorites]