Why should I put money in a high-yield savings account?

High-yield savings accounts reward you with a higher interest rate than traditional savings accounts, making your money grow faster as it sits in your account . The interest rate that these accounts offer is noted as APY, or annual percentage yield.

What is the catch with a high-yield savings account?

Limited growth . While you can grow your money with an HYSA, it's not the best way to generate long-term wealth for retirement because the yield often doesn't keep up with inflation. As a result, working with a broker or robo-advisor to develop an investment portfolio is better for long-range plans.

Which of the following is the main reason to use a high-yield savings account instead of a traditional savings account?

A high-yield savings account offers a higher rate of return on your money compared to standard savings accounts. But some of these accounts charge fees, have minimum balances requirements, and offer variable interest rates that can go up and down over time.

Why would I be denied a high-yield savings account?

Such negative activities that show up on your report and hurt your approval chances include bouncing checks, leaving an overdraft balance unpaid, abusing a debit card or applying for too many accounts in a short period of time , according to credit bureau Experian.

Should I put my money in a high-yield savings account or money market?

A money market account gives you more access to your money in the form of direct checking and ATM withdrawals, but it will generally provide a lower interest rate . A high-yield savings account pays a much higher interest rate, but you have transfer limits and few, if any, accounts let you directly spend money.

Can you ever lose your money with high-yield savings account?

Bank or credit union failures If your high-yield savings account is held at a federally insured financial institution, your deposits are protected up to $250,000. But if you have deposits that exceed this limit, you risk losing the additional amount if the bank or credit union fails .

When should you use a high-yield savings account?

High-yield savings accounts are a proven, safe, and flexible way to help you save for short-term needs, or to just set aside your cash in an account that gets good earnings and where you know you can pretty much have access to it whenever you want.

How much will $10,000 make in a high-yield savings account?

The magic of high yields for your cash Your savings account could generate hundreds or even thousands of dollars a year in earnings. Here are a few examples: $10,000 in a 5% savings account becomes $10,511 in 12 months . $20,000 in a 5% savings account becomes $21,023 in 12 months.

Do millionaires use high-yield savings accounts?

Millionaires Like High-Yield Savings , but Not as Much as Other Accounts. Usually offering significantly more interest than a traditional savings account, high-yield savings accounts have blown up in popularity among everyone, including millionaires.

Does it hurt your credit to open a Hysa?

Opening a savings account only has the potential to trigger a soft credit inquiry and it doesn't impact your credit score.

Is a high-yield savings account better than a regular savings account?

This is the interest you earn on your savings over a year. A traditional savings account earns anywhere from 0.01% to 0.35% on the money in your account. But a high-yield savings account earns much more than that . Right now, many HYSAs are earning APYs of around 3% to 4% and, in some cases, even more.

7 Reasons to Put Your Money in a High-Yield Savings Account

Offering above-average interest rates, a high-yield savings account can be a valuable tool for managing your personal finances. If you don't have a high-yield savings account yet, there are plenty of benefits to opening one. Reasons to put your money in a high-yield savings account include the ability to maximize interest earnings, easy access to your funds, flexible account options and security. Here's a closer look at seven benefits a high-yield savings account can offer.

1. Above-Average APY

High-yield savings accounts earn a higher annual percentage yield (APY) than standard savings accounts. The average APY on a traditional savings account was just 0.46% in December 2023, according to the Federal Deposit Insurance Corp. (FDIC). In comparison, some high-yield savings accounts were earning APYs of 5% or more.

Interest rates for high-yield savings accounts are usually variable and may change at any time. Typically, savings account APYs rise or fall with the federal funds rate set by the Federal Reserve. When the federal funds rate increases, banks usually raise APYs on interest-bearing accounts. At the end of 2023, APYs on high-yield savings accounts were higher than the rate of inflation. Experts predict these rates will decrease in 2024, but only slightly.

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2. Compound Interest

Money in a high-yield savings account earns compound interest. In addition to earning interest on the money you deposit in your savings account, you also earn interest on the interest that accumulates. This helps your savings grow faster, getting you closer to your financial goals.

3. Low Risk

Investing and saving for retirement is an important part of financial planning. However, even low-risk investments such as bonds pose some level of risk. When your money is in a federally insured savings account, however, you can rest easy knowing it's safe.

High-yield savings accounts held at federally insured banks and credit unions are guaranteed up to $250,000 per account owner, per ownership category and per institution. Even if the financial institution fails, you won't lose your money. To guarantee your money's security, check to make sure the bank or credit union is affiliated with the FDIC or National Credit Union Association (NCUA) before opening a high-yield savings account.

4. Easy Access

Money in a high-yield savings account can be accessed at any time. This is a significant advantage over certificates of deposit (CDs), another low-risk savings option. If you need to withdraw money from a CD before its term ends, you'll probably have to forfeit some or all of your interest earnings as a penalty.

You can withdraw money from a high-yield savings account by transferring it into a different bank account, purchasing a cashier's check or getting cash from a bank teller or ATM. In some cases, you can even pay bills directly from your savings account. Keep in mind that some banks limit free withdrawals or transfers from your savings account to six per month before charging a fee.

5. Simple to Manage

Financial strategies such as using a brokerage account to trade securities or investing in real estate can be complicated, requiring a lot of time and attention to help them pay off. A high-yield savings account, on the other hand, offers low-maintenance ease. Once you've set up automatic deposits or transfers into your high-yield savings account, you can "set it and forget it" to a large degree.

Of course, you'll want to check on your savings regularly to watch it grow and monitor any changes to your APY. You may also need to adjust the amount you're saving as your budget, income or financial goals change. Most banks offer mobile apps you can use to easily monitor and manage your savings account whenever you like. Some banking apps also include budgeting tools that can sync with your savings account transactions, further simplifying your financial life.

6. Flexibility

You can open a high-yield savings account online quickly and easily. Once your account is open, you can use it to save for any purpose you choose, from a down payment on a home or new car to your dream vacation or your wedding.

You can even open multiple savings accounts to save for different financial goals. For example, you might have one high-yield savings account for your emergency fund, another for your summer vacation and another to save for non-annual expenses such as insurance premiums or property taxes.

7. Low or No Fees

Unlike investing, which usually involves some type of fee for advisory services or performing transactions, high-yield savings accounts are frequently free. Online banks are the most likely to offer no-fee high-yield savings accounts. Because they don't have physical locations, these banks have lower overhead and can pass the savings on to customers.

That said, some high-yield savings accounts do charge fees, so check the details before you open an account. Banks and credit unions may charge fees for monthly savings account maintenance, overdrafts, using non-network ATMs, account inactivity, excessive withdrawals or dipping below a certain minimum balance. There are often ways to waive the fees, such as by maintaining the required amount in your account.

The Bottom Line

Although opening a high-yield savings account can offer many benefits, it won't help you build a credit history. That's because bank account activity typically isn't reported to credit bureaus and doesn't affect your credit score. However, bank accounts may come with credit score monitoring to help you keep tabs on the health of your credit. If yours doesn't, consider enrolling in Experian's free credit score monitoring to keep tabs on where you stand. Access your Experian credit report, get alerts of important changes to your credit score and use the interactive FICO^® Score^☉ tracker to see how your score changes over time.

7 Reasons to Put Your Money in a High-Yield Savings Account - Experian (2024)

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