Build better saving habits, earn more interest, and take your first step into investing. See why a High-Yield Savings Account might be your smartest move. Let’s have just one convo about the 3 Benefits of a High-Yield Savings Account.

What is a High-Yield Savings Account?

Before we discuss the advantages of a High-Yield Savings Account, it’s important to understand what yield means in this context. Yield refers to the Annual Percentage Yield (APY), which is a savings or investment account’s rate of return over one year, taking into account the effect of compounding interest. Basically, it’s the amount of money your money makes while you’re sleeping. Knowing what yield means will help you understand why having a High-Yield Savings Account is a huge financial benefit. 

A High-Yield Savings Account is an FDIC-insured online savings account that earns more interest over time than a traditional savings account. To clarify, a traditional savings account is often offered by a brick-and-mortar bank, where you can safely store funds and earn a small interest rate. The reason a High-Yield Savings Account offers a higher yield is that operating an online bank incurs fewer expenses than operating a physical bank location. For example, a physical bank location requires the bank to pay expenses such as rent, utilities, maintenance, and in-person staff. The online banking service eliminates many of those expenses, thereby freeing up your money to grow faster. Additionally, you can rest peacefully when you add money to a High-Yield Savings Account because your money is federally protected if the bank fails. 

Why only work for money when your money can work for you while you sleep? 

Use This Account for Short-Term Goals 

There are several reasons to open a High-Yield Savings Account, but you should know that High-Yield Savings Accounts are best for short-term goals of less than 5 years. A couple of examples of short-term goals include an emergency fund, a down payment on a big purchase, or a travel fund. Investing in this type of account is not a good strategy for building long-term wealth, such as a Roth IRA or 401(k). You want to keep that in mind as you research which High-Yield Savings Account company to invest in.

Choosing the Best High-Yield Savings Account For You

If it’s your first time hearing about High-Yield Savings Accounts, it can be an overwhelming amount of information. Here are some guidelines for choosing the best High-Yield Savings Account for you:

• Compare Yield Rates
• Check for Monthly Fees/Withdrawal Limits
• Inquire about Minimum Deposit Requirements
• App Features

3 Benefits of Putting Your Money to Work in a High-Yield Savings Account

Benefit #1: Improves Your Saving Habits

How often do you transfer money from your traditional savings account to your checking account? 

Let’s be honest, you’re probably reading this because you don’t have the best saving habits. That’s okay, I was the same way a couple of years ago! I blame the American Public School systems; they do not do the best job of educating us about personal finances. I was introduced to High-Yield Savings Accounts while watching countless YouTube videos about finances. Until then, I could never save more than $1,000 in my traditional savings account.

Consequently, there is danger in having those traditional savings so readily available, especially if you have poor spending habits. Unfortunately, I frequently transferred money between my accounts. I could never keep money in my traditional savings account. My favorite benefit of the High-Yield Savings Account is that it helps you be more intentional about your finances. 

“One source of income can create multiple sources for you if you know how to manage and multiply the money you are making.”
― Onipede Ayomide

While the money in your High-Yield Savings Account is accessible, it takes about 1-3 business days to withdraw funds, and some companies have a monthly withdrawal limit. These accounts are perfect for people looking to build financial discipline while still being able to access those funds. The delayed ability to withdraw funds can be a smart strategy to keep your funds in the account. 

Benefit #2: You Earn Interest Over Time

Doesn’t your money-making money sound like a dream? Well, it can be a reality. Putting your money into a High-Yield Savings Account is a great way to earn passive income for your short-term goals. Earning passive income allows you to become an investor. Robert Kiyosaki, in his book Rich Dad Poor Dad, introduces us to The Cashflow Quadrant (pictured below). The Cashflow Quadrant is a financial framework that is said to lead us to financial freedom. In this case, being an investor is the best source of income because your money works for you. Therefore, the interest earned in your High-Yield Savings Account is a great way to transition into investing. 

There are a couple of downsides to having a High-Yield Savings Account. First, the High-Yield Savings Rate is dependent on the economy. This rate can fluctuate over time, which impacts how quickly your money grows. Additionally, you have to read the fine print! Some of those rates listed only come with certain criteria. For example, Citadel Credit Union requires you to have $5,000 to earn top-tier interest rates. If you don’t read the fine print, you may get stuck with a 1.2% rate. 

Secondly, the interest you earn is taxable income. Yes, even though the money has been taxed before you deposit it into the High-Yield Savings Account, you still have to pay. I know, I know, crazy? It’s America, we can’t evade taxes, or we’ll spend time in jail. It is best to set aside 10-40% of that interest income so you’re not blindsided when tax season comes around. Referring back to Benefit #1, you have to be intentional about your financial habits. 

Benefit #3: It’s Your Entry Into Investing 

As mentioned earlier, having a High-Yield Savings Account transitions you from just an employee to an investor. Investing your money into a High-Yield Savings Account is a step in the right direction along your long-term wealth journey. Although High-Yield Savings Accounts are best used for short-term goals, you learn how to set aside money for extended periods of time. Setting aside these funds allows you to prepare for investing your money into a Retirement Investment Account, the Stock Market, and Real Estate – the Wealth Longevity Trifecta.

Many folks think they aren’t good at earning money, when what they don’t know is how to use it.

– Frank A. Clark

Financial Wellness Depends on Your Choices

Whether your goal is to live comfortably or to be wonderfully wealthy, your relationship with money determines how you experience it. You need to be mindful that money is a currency. Simply put, currency is a means of exchange. You have to be in the right mindset to increase your financial literacy and responsibility; without those two elements, you will remain in your current position or fall to worse times. The choice is yours. After reading this post, you are equipped with the information needed to open your High-Yield Savings Account. Start here by researching which bank is best for you: Standout Online Savings Accounts.

The difference between saving money and growing money is one decision. What will you choose?

Disclaimer:
This article is for educational and informational purposes only and should not be considered financial advice. I am not a financial advisor or financial professional. The content shared reflects personal opinions and general information about High-Yield Savings Accounts. Always conduct your own research and consult with a qualified financial professional before making any financial decisions. This content is intended for educational and entertainment purposes only.