Receive up to a $200 bonus* when you open your first Discover Online Savings Account.  Learn more.

 Discover Bank, Member FDIC.

Maximize the Interest Earned on Your Savings Using This Banking System

Our current personal banking system is one of the simplest, most powerful tools I’ve ever created to optimize our finances.

Here are a few of the benefits that I will later describe in detail:

  1. Prevent any-and-every type of banking-related fee
  2. Maximize the amount of interest being earned on savings, at all times
  3. Save hours of time by automating account transfers and overdraft protection.

This system was developed through trial and error over the course of several years, and today, I want to share every detail with you to help you create something similar.

How Does it Work?

Here is a brief overview of the system:

  1. Deposit your earnings into a single full-featured, no-fee, primary checking account.
  2. Link the checking account to several no-fee, high-yield savings accounts offering the best interest rates.
  3. Automate by scheduling free, automatic transfers from checking into savings according to your income, expenses, and personal needs.

Before hopping into the specifics, please note:

I recommend specific accounts, at specific banks, because I have done the research and believe these accounts to be the optimal solution. We personally use each of the recommended accounts in the same context as my recommendations below. If you don’t like one of the banks, or would prefer to use a different type of account, feel free to do so.

Now, Let’s Maximize Your Interest on Savings

1a) Establish the Cashback Debit Checking Account at Discover Bank

In my opinion, this is the most competitive no-fee checking product available for the following reasons:

  • 1% cash back on up to $3,000 in debit card purchases each month.
  • Link and make transfers between internal/external accounts for free.
  • Free access to more than 60,000 (no-fee) ATMs across the United States.
  • No account opening fees, monthly maintenance fees, or minimum balance requirements.
  • Automatic Fee Forgiveness – Discover will refund your first Stop Payment or Insufficient Funds fee each calendar year, automatically.
  • Free check orders at any time through your online account (with free shipping), plus free mobile check deposits through the smartphone application.
  • Free Overdraft Protection – When you link a Discover Savings Account (below) to the Cashback Checking Account, Discover will automatically pull funds from your Savings Account to prevent your Checking Account from being overdrawn. All done automatically, in real-time, for free, without requiring a credit pull. A fantastic feature.

The only downside to this account is the lack of physical branches. Discover has just one physical branch in Greenwood, Delaware.

However, if you prefer access to a physical branch, there is a simple solution within the context of this article. Open a no-fee checking account with a local credit union or bank, keep $1 in the account to avoid premature closure, then transfer money from your primary Discover Checking into the Local Checking whenever needed. As I’ll demonstrate with the savings accounts below, ALL external transfers are quick and free through Discover.

1b) Establish the High-Yield Savings Account (offering up to $200 bonus) at Discover Bank

Like the Cashback Checking, Discover’s High-Yield Savings Account is also a highly competitive offering. There are no fees to open the account, no minimum opening deposit, no monthly maintenance fees, and no monthly balance requirements.

In addition, Discover is always quick to raise the interest rate on the account when the Federal Reserve announces a rate increase. I’ve opened more than a dozen high-yield savings accounts over the past five years, and excluding the accounts described later in this article (which you’ll also open), Discover rates are always near the top of the pack (click here for the current APY rate).

All Discover products are linked and managed through a unified account dashboard. By establishing both checking and savings with Discover, you can keep a minimal amount of money in the checking account (varies according to your expenses), with the bulk of your savings earning interest in the high-yield savings account.

Transfers between checking and savings are instantaneous and free (and can be scheduled in advance as one-time or repeating), plus Discover offers free account overdraft protection which automatically pulls funds from the savings account if the checking balance reaches $0.

Note, while you’re opening Discover products, you might consider opening the no-annual-fee Discover It Credit Card (currently offering a $50 bonus and double cash back for a year) or any of the other no-fee products highlighted in my Discover Bank Review.

2) Establish Multiple 5% Savings Accounts through the Netspend Network (+$20 bonus)

The Discover accounts described earlier are used primarily for transfers, debit transactions, bill payments, and other immediate or short-term financial needs. They are absolutely crucial to maintaining a cohesive, interconnected banking system.

However, there are a few specialized savings accounts that offer a higher interest rate than Discover. After first establishing the Discover accounts, you can connect these accounts to your Discover Dashboard and push or pull money between said accounts at any time.

The first specialized savings account you should open is made available through Netspend. There are actually several different 5% accounts available. They all work the exact same way, and all pay 5% interest on balances up to $1,000 (per person, per account). The interest rate is basically zero beyond the first $1,000, which means there is absolutely no reason to hold more than $1,000 in each of these accounts.

I have five accounts in my name, and Vanessa has five accounts in her name, for a total capacity of $10,000. You can’t beat earning 5% interest on $10,000, with absolutely no risk involved. Given our experience and those shared by the Cash Cow Community, I believe that five (rarely six) is the maximum number of accounts allowed, per person.

Each of these accounts operates as a combined prepaid card and 5% savings account. They are a bit of a hassle to establish because you must transfer funds to the prepaid card before you can access the 5% savings account. But once established, each account pays 5% APY interest on up to $1,000 and is fully FDIC insured.

We have $1,000 in each of the (10) accounts to use as hybrid emergency funds. In reality, we almost never touch this money because 5% guaranteed interest is better than any bond investment available today. But, it’s nice to know that the money is readily available should you exhaust other short-term savings. All of these accounts are linked directly to Discover for easy access.

3) Establish the Savings Builder Account at CIT Bank

Once you exhaust the 5% Netspend Accounts, there is one more account available that offers a higher interest rate than every other online bank – the CIT Bank Savings Builder Account (currently 2.20% APY). Much like Discover, this account has zero fees to worry about and no minimum balance requirements (but does require a $100 opening deposit).

If you don’t have additional capacity for savings, or if you don’t care about earning a better interest rate, then just forget about this account and stick to Discover. However, because Discover allows free external transfers, it’s extremely easy to connect the CIT Savings Account to push/pull money whenever necessary.

To earn the 2.20% APY rate on the Savings Builder Account, you must meet one of two qualifying activities each month:

  1. Maintain $25,000+ in the savings account, or
  2. Make a $100+ monthly deposit into the savings account

Performing either activity will earn the 2.20% APY rate that month, but the $100 monthly deposit is clearly easier to achieve using the Discover framework you’ve just established. When you open the CIT Savings Builder Account, log into Discover, link the CIT Account, and establish a recurring $100+ monthly transfer to satisfy the requirement.

Note, while you must have a $100 deposit to earn the 2.20% APY, there are no rules restricting withdrawals and no minimum balance requirements. Therefore, if funds are tight in any given month, either skip the $100 monthly deposit altogether or make the deposit then make a subsequent withdrawal back to Discover.

Summary

The fee-free bank accounts I’ve just outlined are available nationwide and require no ongoing maintenance. When combined, they allow you to maximize the amount of interest earned on your savings and prevent banking-related fees. To recap:

1) Open the Cashback Debit Checking Account and High-Yield Savings Account (+$200 bonus) at Discover Bank

The checking account provides free internal/external ACH transfers, free automatic fee forgiveness, free online bill payments, free checks, free ATM access, free overdraft protection, and earns cash back on all debit transactions.

The savings account provides a highly competitive interest rate, free overdraft protection (when linked to the checking) and includes up to $200 in cash bonuses as a limited-time promotion.

2) Establish Multiple 5% Savings Accounts through the Netspend Network (+$20 bonus)

The Netspend accounts offer an unbeatable 5% APY interest rate and FDIC insurance, even if they are a bit tedious to establish.

3) Establish the Savings Builder Account at CIT Bank

If you still need additional savings capacity, this account provides the highest interest rate among national savings accounts (excluding Netspend). The only requirement is that you deposit $100 or more each month into the account, which can be automated using the Discover framework I’ve outlined.

This banking system has allowed us to maximize the interest earned on our savings, simplify our finances, avoid fees, and save time.

I hope it accomplishes something similar for you.

Editorial Disclaimer: The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author’s alone.

User Generated Content Disclosure: Responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.

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RandyJacob Lumby, PhDBAMThayerSeth D. Recent comment authors

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Randy
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Randy

Hi Jacob, I started the process of getting my prepaid H-E-B; however, I read that they charge a $3.00 fee for every Me-to-Me Transfer-Outbound. (“Transfer of funds via ACH from your Card Account to your bank account at another institution”). Am I missing something here?

BAM
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BAM

Thanks for sharing this info. How do you avoid all the fees that Netspend charges? They charge a monthly fee even if you dont use the debit card. I read now that they automatically upgrade your account to the feeadvantage membership if you deposit $500 or more, and this charges $5 or so a month. Also they have a fee if you withdraw and they also have a fee if there is no activity. So how do you get around all that?

Thayer
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Thayer

Thanks for sharing this strategy!

Seth D.
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Seth D.

Great article and I enjoyed the discussion in the comments. Based on everything written and clicking around online, I think Discover looks like the best overall option. I might try a few of the other banks to compare, but I like what I see from Discover.

Andree
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Andree

I’ve been using Ally Bank for savings, current rate 2.20. They offer an 11 month lock-in CD with a higher rate that can be liquidated after 6days without penalty. Current 11 mos CD rate is 2.3%. When interest rates have gone up, I call them and they close my CD account and reopen it under the higher interest rate. It’s easy and doesn’t take much time to do.

You don’t need to make the $100 monthly deposit into this account. Interest is slightly less. I have been very happy with their customer service.

Joe C.
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Joe C.

I’ve been transitioning to Alliant Credit Union (available to anyone with minimal requirements to join). Their checking has a yield of .65% and savings currently has a 2% yield. The checking yield is very competitive (minimal requirements to get the yield), and the savings has a decent yield. Although their savings is not as high as others, I like the fact that I can instantly transfer between my checking and savings. They also have a very good external ACH system. Personally, I would recommend Alliant over Discover, as I’ve had issues with Discover in the past. The Netspend prepaid cards… Read more »

Mighty Investor
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Mighty Investor

Another thing about Alliant–they have a credit card that pays 3% cash back the first year (fee waived the first year) and then 2.5% in perpetuity. I’ve been with Alliant since the early 90s and have found them easy to deal with.

Chris A.
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Chris A.

So when the interest on your Netspend accounts brings you over $1,000, are you just transferring any surplus over that amount to another account?

Wellington
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Wellington

Just got your email Dr. Cash Cow. This is fantastic for us. Free and relatively easy to implement. Thanks for your diligence is sniffing out these accounts.

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