Why does my high-yield savings account keep going up?
Quick Answer
What are the disadvantages of a high-yield savings account? Some disadvantages of a high-yield savings account include few withdrawal options, limitations on how many monthly withdrawals you can make, and no access to a branch network if you need it. But for most people, these aren't major issues.
High-yield savings accounts offer higher interest rates than regular accounts. You can deposit and withdraw money with ease, providing flexibility. High-yield savings accounts are great when interest rates are low. While they don't offer high returns like investments, they're safe and you won't lose your money.
High-yield savings accounts may have variable interest rates, which may impact earnings. While they aim to offer higher interest rates than traditional savings accounts, these rates may fluctuate over time due to changes in the financial market or the financial institution's policies.
There's no rule on the exact amount to have in your high-yield savings account. The amount of money you should store in these accounts depends on various factors. However, the general rule of thumb is that you should have liquid access to enough cash to cover between three and six months of your expenses.
High-yield savings accounts are an attractive option for short-term savings goals and emergency funds. They're insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). That means money you deposit is safe, up to the legal limits.
Not the best choice for long-term savings – High-yield savings accounts offer much better interest rates than traditional savings accounts, but often, you won't earn enough over the long-term to account for inflation. Investments may be a better option for a longer-term, greater yield.
Like high-yield savings accounts, CDs usually offer substantially higher annual percentage yields (APYs) than traditional savings accounts. As of October 2023, the average CD rates range from 4.60% to 5.55%, according to the Federal Deposit Insurance Corp. (FDIC).
You Could Lose Out on Higher Interest Rates
If you're saving in multiple accounts with tiered rates, it may take time to work up to the minimum threshold for each one to earn the highest APY. And if your balance dips below that threshold at any time, your rate may revert to a lower one.
If you deposit $50,000 into a traditional savings account with a 0.33% APY, you'll earn just $165 in total interest after one year. But if you deposit that amount into a high-yield savings account with a 4.35% APY, your one-year interest soars to over $2,175.
What happens if you put 10000 in a high-yield savings account?
Put that $10,000 in a high-yield savings account that earns 5% APY for the same amount of time, and you'll earn about $500. What your interest can buy: A dollar is enough to buy a soda — but $500 would get you a new TV or kitchen gadget.
Do You Have to Pay Taxes on Your High-Yield Savings Account? You only have to pay taxes on the interest you earn on a high-yield savings account—not on the principal balance. High-yield savings account interest is taxed at ordinary income tax rates.
![Why does my high-yield savings account keep going up? (2024)](https://i.ytimg.com/vi/14H_ZgddZ8s/hq720.jpg?sqp=-oaymwEcCNAFEJQDSFXyq4qpAw4IARUAAIhCGAFwAcABBg==&rs=AOn4CLC1NxoueoUqm6C9SmjUZ2Jk2TY_dA)
As of February 2024, no banks are offering 7% interest rates on savings accounts. Two credit unions have high-interest checking accounts. Eligibility for these credit unions is limited according to geographic location and other narrow criteria.
High-yield savings account rates are variable and can change at any time. This is true for accounts with any kind of rate — whether it's low or average or high. But the best savings accounts tend to offer consistently higher rates compared to their competition.
Having $20,000 in a savings account is a good starting point if you want to create a sizable emergency fund. When the occasional rainy day comes along, you'll be financially prepared for it. Of course, $20,000 may only go so far if you find yourself in an extreme situation.
And even among people who have a lot of assets, the reality is that $250,000 in savings is a lot. Generally, someone with that much cash would be advised to put some of it into a brokerage account to invest.
Mutual funds, ETFs and stocks are more volatile than savings accounts, but they yield far better long-term returns. Take the S&P 500; the index has seen an average annual return of over 12% in the last decade — far better than even the highest high-yield savings APYs in a year full of inordinate savings rates.
- Leverage tax-advantaged accounts. Tax-advantaged accounts like the Roth IRA can provide an avenue for tax-free growth on qualified withdrawals. ...
- Optimize tax deductions. ...
- Focus on strategic timing of withdrawals. ...
- Consider diversifying with tax-efficient investments.
This is the interest you earn on your savings over a year. A traditional savings account earns anywhere from 0.01% to 0.35% on the money in your account. But a high-yield savings account earns much more than that. Right now, many HYSAs are earning APYs of around 3% to 4% and, in some cases, even more.
The flexibility of having more than one account can also help you manage fluctuations in interest rates, which could be important when the Fed eventually pauses its hikes and rates begin to move lower. Holding your savings in multiple accounts can also be a way to help you stay on track to meet specific goals.
Is it better to have a 401k or a high-yield savings account?
Usually, you would choose to invest your money for long-term financial goals like retirement because you have a longer time frame to recover from stock market fluctuations. If the financial goal is short term, say five years or less, it's usually smarter to park your money in a high-yield savings account.
Once your cash is in a high-yield savings account, it's often not worth the effort to switch to another bank offering a slightly higher APY (such as less than 1% more).
Top Nationwide Rate (APY) | Total Earnings | |
---|---|---|
6 months | 5.76% | $ 288 |
1 year | 6.18% | $ 618 |
18 months | 5.80% | $ 887 |
2 year | 5.60% | $ 1,151 |
APY | Interest Earned |
---|---|
0.45% | $4.51 |
4.30% | $43.86 |
5.15% | $52.73 |
“Consumers should be reassured that savings accounts and CDs are covered by FDIC [or NCUA] insurance up to $250,000. CDs are as safe as putting money in a savings account, and in most cases will provide a higher return,” says Rebell.
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