How to use high-yield savings accounts to build a wealth

How to use high-yield savings accounts to build a wealth

If you're making money, it's easy to throw the blinders on instead of stepping back and scrutinizing. I'm earning a return, but is this the best way to do it?

The high-yield savings accounts are among some of the best examples of this type of account. Ally, one of the top-notch online banks, is offering up to 4.25% interest on savings account deposits. Varo and Bask Bank, among other online banks, offer APYs as high as 5% for their high-yield savings accounts.

When you compare these rates with the current national average - 0.43% as of this writing - throwing a bunch of cash into a high-yield account may seem like a no-brainer. If you want to grow your wealth, there's a better way to go about it, depending on your financial goals.

It's expensive to borrow - and not only for consumers looking to buy a house or open a new line of credit, but it's also expensive for banks to borrow from other banks.

By offering savings accounts with higher-than-usual APYs, banks like Ally can attract more clients and a larger pool of cash deposits.

In early 2024, a number of experts predict the Fed will stop and possibly begin lowering interest rates. Banks will adjust their own rates, causing the APYs on high-yield savings to drop.

The current rates on these accounts provide a legitimate way to build passive income, similar to bonds and money market accounts. But since those APYs aren't locked in - they can be changed 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, if you have a long time horizon, says Amy Arnott, an analyst at Morningstar.

Mutual funds, ETFs and stocks are more prone to fluctuations than savings accounts, but they offer far better long-term returns.

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

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

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

The best way to leverage a high-yield savings account is to use it as an emergency fund.

Steffen adds that he has not been able to make a meaningful contribution to the symbiosis.

The real benefit of a savings account, whether it's high-yielding or not, is that they keep your money accessible.

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

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All information provided here is accurate as of the published date.