Heard all the fuss about a high yield savings account but you’re not sure if it’s right for you? Let’s breakdown exactly why everyone needs a HYSA.
I’m going to need you to stop hoarding your cash in a normal bank account– right now.
You do realize that by keeping your money in a normal bank account, you’re making like… 0.24% in interest a year, according to the FDIC.
That’s not much. In fact, if you had $10,000 of your emergency fund sitting in a regular bank account, that means you’d make $24.
With inflation rates soaring at 7.1% this year, we need all the help we can get when it comes to protecting our cash from declining in value.
And one of the easiest ways we can battle inflation?
Is with a high yield savings accounts.
High Yield Savings Accounts: What You Need to Know
I seriously don’t understand why everyone doesn’t have a high yield savings account.
It’s truly a no brainer, but my GUESS is the only thing that holds folks back from having one (other than not having savings currently) is because they don’t understand them.
So let’s break it down.
1. A High Yield Savings Account is Basically the Same Thing as a Regular Bank Account
It really is that boring.
There are a few key differences between a high yield savings account and a standard bank account:
- Most high yield savings accounts are online-only so you can’t go to a local branch.
- Most do not offer ATMs or checking accounts. SOME do, but generally– most do not at the moment.
- Most are FDIC members, but double check because you want your bank to be insured. Period.
2. HYSA have No Physical Locations– Online Only (Usually)
Because most high yield savings accounts don’t have physical locations, they’re able to pass the savings on to their customers through interest paid on their savings.
My HYSA is currently paying 3% interest, more than 10x the national average…
Which means if I have $10k in my savings account, that’s an extra $300 a year. Basically pays for one of my hair appointments… almost.
3. Transfers Take a Few Days
One of the pros (and cons tbf) of a HYSA is that since it’s online, you usually need to keep your regular bank account to access your money.
Some HYSAs like Ally and Sofi now offer checking accounts, so this issue won’t apply, but for most– you’ll need to keep that regular bank account for transfers.
In my opinion, this is partially a pro because some of us struggle with not withdrawing from our savings for fun expenses but with that extra hurdle of needing to transfer your money out of the HYSA first?
It’s easier to leave things like your emergency fund alone.
The con is that your money isn’t immediately accessible, you have to transfer it to your regular checking account to use it, which can take 2-3 business days.
Wait– so what would I do in the event of an emergency then?!?!
This is a question I always get, and my answer: You use your credit card to pay for the emergency, then transfer the money to your bank account, and then pay off the credit card when that money hits your account.
Ta-da! Points and interest!
Or, you could in the event of an emergency wire money from your HYSA to your normal bank account and some have expedited transfers– for a fee.
4. High Yield Savings Accounts are FDIC Members
Yep! So you get that sweet sweet FDIC insurance coverage for your online savings account too!
What’s that mean?
That means if for some reason the bank goes under– your money is still protected. The maximum you’ll get insured is $250k per person, per account.
So if you have five accounts with one bank that total $500k– then $250k would be insured and $250k would not be insured. You CAN however have multiple bank accounts, and get coverage at each bank as long as they are FDIC members.
Now– keep in mind… there are DeFi products out there pretending to be high yield savings accounts. These types of accounts offer you ridiculous promises of high returns– like 8% interest paid to you in crypto!!!
If you see that?
Run. Those products are not insured. Just Google Block Fi if you need an example of how terrible these products can be.
5. Most Have No Monthly Fees of Minimums
Now, this one– it depends. All the HYSAs I recommend– have no monthly maintenance fees or minimums.
This is why I recommend Ally the most because they’re incredibly transparent about their fees– which are pretty limited. (No, this is not sponsored by Ally, but if Ally is reading this and want to sponsor me– HMU).
No minimums! Some banks do require minimums– but again, not the ones I recommend.
6. Fee Free Withdrawals
You can withdraw from your HYSA account up to 6 times a month fee free. Anything above six times, and you’re paying a $10 fee each time you withdraw.
During the pandemic– Ally actually waived the fee for over-withdrawing, but ma’am…
If you’re withdrawing from your SAVINGS 6x or more a month… what are you doing?
7. Open a High Yield Savings Account Online in Less than 15 Minutes
I am not kidding you when I say that opening a high yield savings account is one of the easiest things you can do.;
In fact, last week I helped a friend open one and it took her a whole 4 minutes.
Open one while you’re watching TV.
From your phone.
But why WOULDN’T you get that free money?
8. Interest Rates are Variable
And I almost forgot– one more thing to note– the interest you receive on your HYSA is variable. It’s going to change when the federal interest rates change.
During the pandemic– most HYSA were at around 0.5% interest, but now they are hovering between 3.5-4%! Just know that’s part of the process. But no matter what?
It’s paying you more than your standard bank account.
But Won’t I Have to Pay Taxes on the Interest Earned???
Yes, of course.
I always find it funny when people use this as a reason for not opening a HYSA.
Like yeah– we live in Capitalist America. You have to pay taxes on all income you make– period.
But you made money.
Think about it this way– let’s say you had your $10k emergency fund chilling in a HYSA and made $300 in interest, and then you had to pay $60 in taxes for that.
That’s still a win.
You made $240 net.
What’s the problem, broski?
Opening a HYSA is a No-Brainer
So, are you convinced?
It’s a no brainer. You’ll switch to one and be like– wait why didn’t I do this sooner?
My brother Max switched a few months ago after me badgering him, and after a month of having switched he messaged me and said– I already made a few bucks!! Pretty cool!
It’s really that simple.
It’s not a life changing amount of money.
But it’s a few extra dollars in your pocket which I think is really cool.