This will probably come as no surprise, but I love talking about personal finance. I enjoy talking personal finance both with newbies, and also with people that think a lot about personal finance like myself. I love hearing different strategies hearing what others are doing as I often will learn some thing that I didn’t realize myself.

I’ve had the chance to do a couple of one on one consultations recently, which has been really fun and fulfilling for me. Personal finance is a lot of little tips and tricks, and some of it may just be things that you wouldn’t have known unless someone had told you. I love being able to take a short 45 minute conversation with someone and perhaps give them a few little tidbits that will set them up for success in the long run. PS I’m always open to chat – drop me a note at ben AT youngmoneyfinance.com

One topic that has come up several times recently is the topic of having a high-yield savings account. This was something that some folks that are new to personal finance didn’t know about, and also something that a few of my knowledgeable personal finance friends had forgotten about. Basically the idea is that if your money is going to be just sitting there hanging out, that you might as well put it to work for you and have it work as hard as it can for you. a High Yield Savings Account allows you to do just that.

What is a High Yield Savings Account 

Although there are lots of different types of accounts where you can put your money, a High Yield Savings Account is technically just a regular savings account, just one that pays more interest. There are no strings attached, or surprises about what you can do with your money or when that is different from a regular savings account, it’s just that this account will pay more interest. These are often offered by online banks, and so because they don’t have physical branches, they are able to save on expenses, and therefore pay a higher interest rate.

These types of accounts are FDIC insured, come with no fees, and are a great place in my opinion to park money that you have in a savings account. There are different types of accounts, like money market and certificate of deposit accounts (CDs), but a high yield account is just a regular savings account.

What type of interest are we talking?

Most of your regular banks (i.e. Wells Fargo, Truist, Bank of America etc) will pay right now 0.1%-0.5% interest. For the sake of an example, we’ll go with a Wells Fargo “Platinum Savings Account” that pays 0.26% interest. On the High Yield Savings Account side – American Express is paying 4.3% interest. Online banks like Sofi, Marcus, Capital One etc are all paying above 4% interest. According to this simple online calculator, $10,000 in a Wells Fargo account for 1 year will pay $26 vs Amex paying $430. Not sure about you but $404 is not an insignificant amount of money. And if I am given the option of $26 and $430 and the $430 has no extra fees, no extra risks, the same FDIC insurance and the same easy to use online interface…I’ll take the extra $404 please and thank you.

Why should I even consider them?

That’s a great question! One of my personal finance philosophies is to have your money in fewer places, rather than more places. So that’s a good question asking why you should consider it an account like a High Yield Savings Account, especially if it means opening up a new account. For me the difference in the interest rate, without taking on any additional risk or fees, makes it worthwhile. I also have my high-yield savings accounts through banks that I am already working with, for example, my credit cards. Back in the day I had a Capital One credit card and have a High Yield Savings Account through Capital One, and I also have an American Express High Yield Savings Account as well. This is a me problem, but I probably should consolidate those two into just one banking institution rather than two, but that’s neither here nor there.

Depending on your financial strategy, you may or may not have a lot of money in a savings account to begin with. Perhaps you don’t have a lot of money to begin with, as you were just starting out on your financial journey or perhaps you don’t having a lot in there because you don’t want to keep a lot in a savings account based in cash and instead prefer to invest it. So, on a pure numbers game, the interest earned in a high-yield savings account compared to a regular savings account will obviously be higher, but perhaps it’s not meaningfully high enough to where it makes sense to have a whole separate account. I would argue, though that it is worthwhile, because I am a big believer in having your money work as hard as it can for you. And if you can adopt good habits, now, like keeping your money in a High Yield Savings Account, where it’ll earn more money, I think you can set yourself up for making good financial decisions in the long run. If your moneys just sitting there, it might as well earn as much interest, risk-free as it can.

Where can I open them?

There are a lot of solid options and honestly you can do a quick Google search for highest paying interest rate savings accounts to give you some good recommendations. These types of accounts are quite popular now, so you’ll likely find a few options when you go to look. The things that I look for our definitely bigger name brands that I recognize. Technically, as long as the bank is FDIC insured, which is another thing, I will confirm before opening up an account, then your money is risk-free, and even if the bank went under (like it did earlier this year with Silicon Valley Bank – read that story here) then your money would still be safe. However, that feels like a big hassle to risk a bank going out of business and having the federal government step in so I’d prefer to do business with bigger and more established banks. So those are the two things that I look for: name, recognition, and FDIC insurance.

It’s also worth noting that just because a bank has the absolute highest interest rate right now that it doesn’t mean that they always will. One of the things that I like about my high-yield savings accounts is that they are frequently updating the interest rates given current market conditions. For the past few months, I’ve gotten what feels like a monthly email from American Express saying good news, your rate is going up.

TLDR

Your money should always work as hard as it can for you. If you have a savings account where you keep any amount of money in one of the national banks, you probably aren’t earning as much interest as you could. A High Yield Savings Account will give you some thing like 10 times more interest then your local bank will offer you. A savings account is not an account that you will likely be touching your money very often, so you might as well have earn as much interest as you can. If you don’t have a High Yield Savings Account today, I highly recommend researching, and opening one as soon as possible! Earn as much interest as you can be!