Why you should deposit $15,000 into a high-yield savings account (2024)

FAQs

Why you should deposit $15,000 into a high-yield savings account? ›

Putting $15,000 into a high-yield savings account right now could be a great move for your financial future. You'll earn solid returns, your money will be secure and you'll still have access to all of the cash you deposit, plus interest, if you need it.

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.

In summary, a certificate of deposit gives you steady and safe returns. Investing $15,000 in a CD could lead to substantial gains, regardless of the CD's length. However, make sure you won't need that money while the CD is active because withdrawing early usually incurs hefty penalties.

For savings, aim to keep three to six months' worth of expenses in a high-yield savings account, but note that any amount can be beneficial in a financial emergency. For checking, an ideal amount is generally one to two months' worth of living expenses plus a 30% buffer.

Generally, having at least three to six months of living expenses can offer a safety net if you experience job loss or a medical emergency. For example, if you have monthly expenses of $5,000, aim to save $15,000 to $30,000 in your emergency fund.

Safety: As noted, most high-yield savings accounts are either FDIC or NCUA insured for up to $250,000. Moreover, as deposit accounts, they're not susceptible to the ebbs and flows of the market, so there's little to no chance you'll lose the money you deposit into one.

Potential Drawbacks of High-Yield Savings Accounts

They are savings accounts, so they can prove limited in how much they earn over time. They may not be a substitute for riskier investment accounts or relied on solely for larger goals like retirement.

That said, here's how much you could expect to make by depositing $20,000 into a one-year CD now, broken down by four readily available interest rates (interest compounding annually): At 6.00%: $1,200 (for a total of $21,200 after one year) At 5.75%: $1,150 (for a total of $21,150 after one year)

Banks and credit unions often charge an early withdrawal penalty for taking funds from a CD ahead of its maturity date. This penalty can be a flat fee or a percentage of the interest earned. In some cases, it could even be all the interest earned, negating your efforts to use a CD for savings.

Can you live off of a high-yield savings account? ›

It's possible, but it isn't realistic for everyone. Living off of interest relies on having a large enough balance invested that your regular interest earnings meet your salary needs. Rest assured that you don't need to earn a million dollar paycheck to reach your goal.

Gaines reiterates that even most high-yield savings accounts lose value to inflation over time. “More than two months' worth of living expenses in a savings account is too much given the ability to earn around 5% from easily accessible money market accounts that should not fluctuate in price.”

Not the best choice for long-term savings – High-yield savings accounts offer much better interest rates than traditional savings accounts, but often, you won't earn enough over the long-term to account for inflation. Investments may be a better option for a longer-term, greater yield.

Putting $15,000 into a high-yield savings account right now could be a great move for your financial future. You'll earn solid returns, your money will be secure and you'll still have access to all of the cash you deposit, plus interest, if you need it.

All in all, depositing $20,000 in a savings account can be wise if you have a short-term plan for the money. Your deposit will be safe and you can generate decent amounts of interest in the meantime.

What are the cons of a high-yield savings account? Variable rates. Interest rates on these accounts can and do fluctuate, which means the APY you started with could potentially drop. Keep your eye on such changes and remember that the money is yours; at any time, you can move it to a bank that offers a higher rate.

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.

Higher rates: Rates on high-yield savings accounts are approaching 5% right now. That's equivalent to an extra $500 earned on a $10,000 deposit over one year, simply made by transferring funds from a regular account into a high-yield one.

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.