High Yield Savings Accounts
High yield savings accounts, or HYSAs, are savings accounts that offer a higher interest rate compared to traditional savings accounts. They are great tools to help you save up for large purchases, like a down payment on a house. If you start with $20,000 and save $500 each month in a high yield savings account for 10 years, you will end up with more than $100,000 for a down payment. Over 25% of that amount will be from compound interest alone! Use the high yield savings account calculator below to see how much interest you can earn with a HYSA to achieve your short-term savings goals.
What are high yield savings accounts?
HYSAs are lucrative savings accounts with high interest rates, some of which have had interest rates up to 5% in recent years. Meanwhile, traditional savings accounts offer much lower interest rates, typically less than 1%. There are also other pros to keeping your money in high yield savings accounts. HYSAs have high liquidity, meaning you can take money out easily whenever you need it. HYSAs are also very low risk, so you don’t have to worry about the account balance going down, unlike regular investments in the stock market.
However, there are some disadvantages to high yield savings accounts. HYSAs are not tax-advantaged accounts; you will need to pay taxes on the interest you gain at the end of the year. Also, high interest rates may not last forever, and there is always a chance you could earn more money in the stock market.
Even so, here are a few reasons you should take advantage of the benefits of a high yield savings account:
- Emergency Fund: General guidance is to have at least 3-6 months of expenses stashed away in a savings account in case you lose your job or run into an unexpected large expense. HYSAs are perfect places to store this money since they are easily accessible and low risk, while still allowing you to earn interest at high rates.
- Saving for a large purchase: If you plan on making a large purchase in the next 5 years, like putting a down payment on a house or buying a car, HYSAs are a great place to put your money while you keep saving. A HYSA will let you still earn some interest while keeping you safe from any market volatility.
- You just received a large settlement or inheritance: If you just received a large amount of money in a lump sum you might be overwhelmed by your options. When this occurs, common guidance is to park that money in a high yield savings account for a year (or maybe longer) so you can still earn some interest while you figure out the best way to use that money to prepare for your future.
How to open a high yield savings account
Opening a whole new savings account may seem like a lot of work, but it can actually be done all online in a matter of minutes. Here’s how to get started:
- Choose a bank to open your HYSA with. This may be a bank you already have account with or a new bank. Do a quick Google search and look for a bank offering a high yield savings account with no fees and a minimum balance requirement that works for you. Commonly recommended HYSAs can be found at banks like Ally, CIT, and Discover. You may find that often the banks offering the highest interest rates are online-only banks. This is largely because they don’t have the added cost of maintaining brick-and-mortar stores, so they can often give you a larger return on your money compared to other banks like Chase, Wells Fargo, and Bank of America.
- Follow the links on your company of choosing’s website to open the account. You may need to provide basic information like your date of birth and Social Security number.
- Add money to your account and earn that interest! You can add money from existing accounts, like your current checking or savings accounts, or even set up direct deposit into your new HYSA. Just because you have a new account doesn’t mean you need to completely switch banks. Add however much you want to this account to accomplish your savings goal.