| | | | | | Here are four words you might soon be hearing a lot more frequently: high-yield savings account.
Sometimes referred to as online savings accounts, these aren't the sexiest financial products, but it may be a good time to get one if you don't have one already. While you won't find the same return from savings accounts as you will investing your money in the stock market (ideally in a low-cost index fund), they still play a key role in your financial toolkit — especially since banks are starting to pay a higher return on them.
Since the Fed started raising rates earlier this year, banks have wasted little time pushing up the rates on lending products like mortgages and credit cards. But these rising rates come with a bit of a silver lining: While it's getting more expensive to borrow money, popular online savings accounts are starting to increase the rewards for people saving money.
You may already know that traditional savings accounts let you earn money just by keeping cash in the bank. But with a national average annual percentage yield (APY) of just 0.07% for those types of savings accounts, you might be wondering if such a small return is even worth it. Well, that's where a high-yield savings account can come in.
The typical high-yield savings account can earn upwards of 1% APY right now, more than 16 times the rate of return from traditional savings accounts. Typically, online-only banks offer much higher rates because they have lower overhead costs and can pass those savings along to the consumer.
You may have already noticed that some banks – including Ally, Capital One, and Marcus by Goldman Sachs — have already started raising savings APYs, a trend which experts say will continue in the near future. In fact, interest rates on some savings accounts could be as high as 2% by the end of the year, according to Greg McBride, CFA, chief financial analyst at Bankrate.
He says the account you keep your money in is going to be very important the next couple of years because "some savings accounts are going to be earning 2% at the end of the year; some are going to be earning 0.02% at the end of the year. Which one of those you have your money in is entirely up to you."
If you don't already have one, opening a high-yield savings account is an easy way to earn some extra cash to boost your emergency fund or savings for other short-term goals. These extra earnings may be small, but over time make a difference. Plus, you can withdraw from the account anytime and it's safe from the risks of market fluctuations.
So for those who still have a conventional savings account earning .02% or less, it's a great time to consider a switch to a high-yield savings account. There are a lot of choices out there, so make sure to shop around.
Yes, it's important to look out for a generous APY — but you'll also want to consider fees and minimum balance requirements, whether it's insured by the FDIC (it should be!), and other convenience factors that align with your banking habits. If you want help, here's a list of the high-yield savings accounts we think are the best.
Once you've done your research, opening a savings account is relatively easy and shouldn't take much of your time. For savers who already have accounts, keep doing what you're doing.
If you don't already have a high-yield savings account, go open one so you can start earning more interest on your emergency fund sooner rather than later.
What do you think of these weekly emails? Any other topics you're interested in reading about? Tell me at alex@nextadvisor.com or @AlexGailey on Twitter.
| | | |  | | |  | | | | THE BOTTOM LINE | | Interest rates are rising, so now's a good time to open a high-yield savings account if you haven't already. With it, you'll keep your emergency fund and short-term savings safe and highly liquid, while still earning some interest. | More soon,
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great tips like these. | | | | | | | |  | | | |
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