Where to Deposit Your Social Security Check

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Some Social Security recipients recently had to find a new way to receive their payments. The Social Security Administration phased out paper checks starting September 30, opting to send payments only electronically, except as a last resort for recipients who have no other option.

Whether you've already been receiving Social Security payments by direct deposit or if you'll be starting to receive them that way soon, it's worth taking time to consider where your payments are being deposited. This decision could earn you valuable interest — or cost you in fees and missed opportunity.

That's because some bank accounts offer generous APYs, helping you earn more money and stay ahead of inflation, while some come with high fees, which can reduce your earnings. I'll show you which options are best for optimizing your earnings.

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Outpace inflation with high-yield savings accounts

One smart solution is to deposit your Social Security payments directly into a high-yield savings account. You can find high-yield savings accounts (HYSA) that'll earn you over 4.00% APY, with no account fees or minimums.

This option works best if you treat your Social Security earnings as supplemental income, since you can have it sit and earn higher interest until you need to use the funds.

What I like best about high-yield savings accounts is their flexibility. Unlike CDs, where you have to pledge your money for a specified term, you can access your high-yield savings account anytime you need.

Considerations: Many HYSAs are from online banks, not brick-and-mortar, so you would not have the option of stopping into a local location to problem-solve. If you need to use the funds, you also have to contend with transferring them to, say, a checking account, which doesn't happen instantaneously, so you have to plan.

If you're concerned about signing up with an online bank for cash access, I recommend also opening a checking account with that online bank. Look for checking accounts that offer debit cards, which allow you quick access to your cash.

And if you're interested in signing up for a HYSA, use this Bankrate tool to find the best options quickly:

Try a savings account with checking account flexibility

a happy chap using his debit card on his smartphone

Another option to consider is a money market account. What makes them unique is that you'll earn an APY that rivals some of the best high-yield savings accounts, but you have more options to access your cash than you do with a HYSA.

Most money market accounts come with debit card privileges. Some also offer check-writing capabilities. This way, you don't have to contend with paying ATM fees or waiting for transfers if you need access to your money.

Considerations: Many money market accounts have monthly transaction limits. If you exceed them, the bank can decide to decline the transaction or approve it and charge you a fee.

As such, only use a money market account if you don't plan to make many purchases on the account. Another thing to consider is that these accounts have monthly fees if you don't meet the minimum balance requirement – think $1,000 or more.

Can I use a local bank?

an older couple consulting with a banker

If you don't want to give up banking with your local branch, I don't blame you. There's a personalization there that's hard to come by with online banks. Plus, it can be a great undertaking to switch your bank accounts.

By that same token, many brick-and-mortar banks don't offer the same level of returns you can receive with an online bank. For example, I checked the savings rate with my local PNC Bank. For balances $1,000-$2,499, I would earn 0.02% APY. Anything above that earns me 0.03% APY.

By comparison, Newtek Bank has a high-yield savings account that earns 4.35% APY. Choosing this option, especially if you have $10,000 in the bank or more, ensures you earn hundreds of dollars in interest annually. So, if you do decide to go with a traditional bank, look for one that offers high-yield savings accounts, or else accept that you'll lose out on some money.

Considerations: Sometimes, it makes sense to stay with your local branch. If you have an aging parent who relies on a personal banker to help them with bill payments and budgeting, then I wouldn't recommend switching.

Some local banks also offer savings account bonuses, where you can earn hundreds of dollars for opening an account, setting up direct deposits of your Social Security check and keeping that account open for at least a few months. Use this in the interim if you can, but know eventually you'll need to switch to a savings account with a higher APY to keep your earnings growing.

With almost all Social Security recipients receiving their checks electronically, choosing the right bank account is vital. By selecting one that offers no account fees or minimums, with higher APYs, you're allowing your money to continue to grow to outpace inflation.

This is why high-yield savings accounts continue to be the best option to consider. However, if you want more flexibility in how you access your cash, money market accounts give you more ways to do so, while also earning far more than your local branch will pay you.

Sean is a veteran personal finance writer, with over 10 years of experience. He's written finance guides on insurance, savings, travel and more for CNET, Bankrate and GOBankingRates.