I love to ask this question: Are you a business owner? It’s ok if you’re not. According to Statista.com, as of 2023, 93% of Americans are NOT business owners. However, almost 70% of Americans have a savings account and guess what? With your savings account, you are in the unofficial business of loaning money to banks. So, congratulations unofficial Business Owner! You are doing your thing, getting paid interest payments every year.
I am not a financial advisor, so I will talk about myself: As a good business owner, of course, I want maximum payment for my product (my money is my product). I don’t want to be pricing my hard-earned dollars too low! This is where High-Yield Savings Accounts come in. Where the average consumer bank may pay less than 1% APY, a high-yield savings account is currently paying up to 5%. Take a moment to check the interest rate on your savings account, you would probably be appalled. Does this really matter? YES! Imagine if I had $1,000 in my savings account: At 1%, I would earn $10 whereas, at 5% I would earn $50. You don’t want $50? I mean, I could find many uses for $50!
What is APY anyway? An annual percentage yield (APY) is the interest my money would earn if I left it in the account for one entire year. A High-Yield Account means the account offers a higher than average interest rate. Why? Because High-Yield Accounts tend to be online or through credit unions. Their overhead costs tend to be lower than other banks because they don’t have branches (but when was the last time I walked into a bank? Who does that these days?). My funds would be accessible through online transactions, mobile apps or ATM. This allows the bank to pay me more to hold my cash. While rates may occasionally fluctuate (yes, like any bank, rates can go down. For the past year, my rate actually keeps going up!), high-yield savings accounts are just what they say they are, savings accounts with higher-than-average interest rates. Sounds simple, right?
Well, first I would have to research the rates and confirm the bank is FDIC insured and make sure there will be no monthly maintenance fees eating away at my funds. I also prefer my interest to compound daily. Then I would have to grab my driver’s license and social security number and complete the online forms to open an account, transfer some money into it and if I'm not completely exhausted, watch my money pile up! What if the rates start to drop? I'm still earning more than the average consumer bank, but there’s nothing to stop me from moving on to another bank. Keeping an eye on the Fed rate, I will know the market value of my money and make adjustments accordingly. Remember, I'm the boss. I don’t have to be underpaid for letting them use my hard-earned cash!
What if I'm a hop in, hop out type of saver? I put $200 in and then go and take it right back out. Is a high-yield savings account right for me? Ummm… yes, if I'm willing to tweak this hopping habit. A high-yield savings account can help keep my money at a little distance from an impulsive debit-card swipe. Mindful spending can be a great thing! I can also gain more control of my spending by using the account to prepare for things I pay for anyway. For instance, imagine I received a $2,000 tax return and I put it all in my high-yield savings account. I plan to take the kids to Disney in the summer and I know it will cost $5,000. Instead of waiting and charging the entire amount on my credit card at the time, I can begin sending $250 monthly deposits to my high-yield account in order to collect interest on the money I was planning to spend (and hey, if I can put it all in there in a lump sum, even better! Remember, the more I have in the account and the longer I leave it there, the greater impact of compound interest). At the end of a year, I would have earned $130 on my $5,000. That would cover at least one tank of gas for the week!
Some of my friends do this with their annual home tax payments or anticipated vacations (ever hear of sou-sou? Ever hear the sad sou-sou stories?). My friends save incrementally all year in a high-yield savings account, then transfer the money to their checking account when it’s time to pay these expenses once or twice a year. Don’t take my word for it, play around with this compound interest calculator to see what your money can do! Remember to check the difference between compounding annually and daily.
Ok, financially savvy unofficial business owner, if you’d like to open a high-yield savings account, search the internet for some of these banks to find out their current APY, minimum balance requirement and any fees, also check your local credit unions:
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