If your savings are parked in a traditional checking or savings account, you’re likely earning almost nothing in interest. And once you account for inflation, you may actually be losing money.
To make the most of your savings, you’ll need to keep your funds in a high-yield savings account where they’ll accumulate interest and grow over time.
Here’s how much more you can earn by stashing your savings in a high-yield account.
High-yield accounts vs. traditional accounts
As of October 2020, rates on high-yield accounts were hovering around 0.55% APY. That’s 55x higher than a traditional savings account with an interest rate of 0.01%, which is what a lot of the big banks offer.
If you were to put $10,000 into a traditional account at 0.01%, you’d only earn $1 in interest during an entire year.
However, with a high-yield savings account at 0.55%, you’d earn $55 — and that’s without making any monthly deposits.
At the same 0.55% rate, making a monthly deposit of $200 over one year would earn you $61.04; over three years it would earn you $223.81, and over five years it would earn you $441.32.
Since most high-yield accounts come with no monthly fees, the extra interest you earn is basically free money — something everyone could use these days.
What to look for in a high-yield account
Before you open a high-yield account, it’s a good idea to shop around a bit and compare your options. Here are a few key things you should look for:
Interest rates. Make sure to check whether the rate being offered is standard or promotional. Some banks offer attractive introductory rates that will drop after a set period of time and earn you less money in the long run.
Minimum deposits. You may be required to make a minimum initial deposit to open certain high-yield account, so you’ll need to make sure you’re comfortable setting aside that amount of money upfront.
Fees. Many high-yield accounts come with no monthly service fees, but it’s a good idea to look into whether there are any additional costs, like transaction fees or charges for not maintaining a minimum balance in your account.
Access to your money. Some high-yield accounts may require a waiting period of several days before you’ll have access to your funds, so if you need quick access to your savings you should find an account that offers ATM withdrawals.
Compounding offer. The more often your interest is compounded, the faster your savings will grow. If possible, choose an account that compounds interest daily.
The smartest way to save
Whether you’re using your savings as an emergency fund, planning for a post-pandemic vacation, or just setting aside some extra cash for the future, a high-yield account is the best place to park your money.
If you’ve got funds stagnating in a traditional checking or savings account, don’t wait — start comparing rates on the top high-yield accounts today.