High Yield Savings [Post 17]

Saving for a long-term goal? The stock market may be the place for you. But what about short-term savings goals where having cash on hand is necessary? A high-yield savings account may better suit one’s needs in this situation.

A high-yield savings account is like a traditional savings account, but with a higher rate of return. While the typical bank account may only provide a rate as low as 0.01%, rates in high yield savings accounts have been at the 3.5 - 4.75%1 level as of April due to the Federal Reserve increasing the federal funds rate. These high rates can be brutal if you plan to borrow money but are great if you are the one lending to the bank by funding an account.

High-yield accounts are ideal for getting some return on excess cash or boosting short-term savings goals, such as a down payment on a car or a house. Funds are easily accessible and commonly can be withdrawn the same day or the next business day without penalty.

Worried there may be risk involved? If the account is FDIC insured, at least $250k is covered by the government if the issuing bank fails.

Be aware of minimum balance requirements, possible fees, and withdrawal limits before committing to one of these accounts. It is also reasonable to believe the rate of return will eventually come down. Rates today may be close to 5% but as recently as 2022 they were nearly 0%.2

While the stock market may be a great place to invest in the long run, high-yield savings accounts can offer considerable returns and safety for short-term savings goals in today’s economy.

1. Investopedia. (2021). High-Yield Savings Account.

https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp

2. Federal Reserve Bank of St. Louis. (2021). Effective Federal Funds Rate [DFF].

https://fred.stlouisfed.org/series/DFF

Image. Taylor, Hyundai (2023). "How to Save Money for a Car."