How to use high-yield savings accounts

How to use high-yield savings accounts

If you're making a little money without doing anything, is it easiest to throw the blinders on instead of stepping back and scrutinizing?

High-yield savings accounts are among the most common examples. A well-known online bank, Ally, is offering up to 4.25% interest on savings account deposits. Varo and Bask Bank are offering APYs as high as 5% for their high-yield savings accounts.

With a high-yield account, throwing a bunch of cash into a high-yield account could seem like a no-brainer. If you want to grow your wealth, there may be more powerful ways to do so.

With interest rates at record highs, it's expensive to borrow money - not just for consumers buying a house or opening a new line of credit; it's also expensive for banks to borrow from other banks.

Banks like Ally can lure in a larger number of clients and a larger pool of cash deposits by offering savings accounts with higher-than-usual APYs.

Many experts expect the Fed to pause and maybe even begin lowering interest rates in early 2024. Banks will adjust their rates, which means that APYs on high-yield savings are probably going to drop.

The current rates on these accounts offer a legitimate way to build passive income, similar to bonds and money market accounts. But since these APYs aren't locked in - they can change at any time - they're not workable replacements for other growth investments, especially in the long term.

'Tinevitably want to have money there, instead of in equities or other types of investments, when you have a long time horizon,' said Amy Arnott, an analyst at Morningstar.

Although mutual funds, ETFs and stocks are more volatile than savings accounts, they provide much-improved long-term returns.

In the past decade, the S&P 500 has experienced an average annual return of over 12%, far better than even the highest high-yield savings APYs in a year full of inordinate savings rates.

Even if you're risk-averse, it's better to look for investments like certificates of deposit or money market funds, which do allow you to lock in an interest rate and carry similar or even higher rates than high-yield savings accounts.

What are some good ways to use a high-yield savings account?

To capitalize on a high-yield savings account, the best option is to use it as an emergency fund.

Steffen says that it's a good thing he does not work for the government, but that he wants to be a good president.

savings accounts, whether high-yielding or not, keep your money accessible.

Curinos' head of retail deposits, Adam Stockton, sums it up with an anecdote. One weekend, Stockton's water heater blew out, causing his basement to flood. The incident cost him thousands of dollars, as he caused the damage to his home and the off-hours plumber he called to handle it. The saving grace was an accessible emergency fund.

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You can put a lot more money into your HSA next year.

All information is accurate as of the published date.