Okay, Sallie Mae is advertising a savings account with 1.25% APY. That seems incredibly high for a savings account, especially right now. It seems like a too good to be true type thing. Is there a catch? What kind of account is this? (Is it a money market account?)
Yup. It's totally legit and it is not a money market account. Though interest rates are so low across the board, this is about as high as savings accounts get and so it is called a "high-yield savings account". A number of banks offer these. There are different offerings nation-wide versus local/state. I would use this compare tool at DepositAccounts.com to find them and the blog is very good with updates and trends. Here are some well advertised accounts:
- Smarty Pig 1.35%
- American Express 1.30%
- Capital One 1.25% plus a 10% bonus
- Discover 1.20%
- Ally Bank 1.05%
- ING Orange 1.00%
If you don't already have a rewards checking account, get one of those first. DepositAccounts.com will direct you to these as well. A reasonable interest rate on rewards checking is 2.5% and up. So much better. The only catches are reasonable - online statements, direct deposit or autopay, and use your debit card 10 or 12 times a month for any transaction amount (groceries, coffee, gas - easy).
The other major thing I would consider when opening any account is where you live and the current accounts you have. If you have an AMEX card already, just use their savings account. That way you have unified accounts, faster transfers, your personal information isn't spread thinly around all different banks, you have more leverage with the company as a "long-standing customer", etc. As far as using a bank in the state where you live, it simplifies taxes.
Two more things: I would always choose a credit union over a bank (and many have excellent rewards checking accounts). If you use Mint, Yodlee, or other financial software, make sure the potential new bank integrates with that service.
It is FDIC insured, there is no catch .. a few banks offer above 1% APY. Alliant and Ally come to my mind.