High-yield savings accounts (HYSA) can be a financial game changer, offering significantly higher interest rates compared to traditional savings accounts. The money you allocate to a HYSA can grow faster, aiding you in reaching your financial goals quicker.
How much money to stash away in such an account largely hinges on individual financial circumstances and objectives. Here’s a breakdown to help you figure out how much of your money should go into a high-yield savings account.
Identifying Your Savings Goals
Your savings goals are the primary determinant of how much money you should funnel into a HYSA. Common savings aspirations include creating an emergency fund, saving for a home down payment, planning a vacation, or putting money aside for a car down payment. Each of these goals requires a different savings strategy and amount.
Down Payment for a Home: Save 20% of the Home Price
Aiming for a 20% down payment on a home can lead to more favorable mortgage terms and lower monthly payments. If a home costs $800,000, a 20% down payment would be $160,000. How quickly you reach this goal depends on your monthly savings capability in your HYSA.
Emergency Fund: Set Aside 3 to 6 Months of Living Expenses
An emergency fund acts as a financial buffer during unexpected situations like job loss or medical emergencies. Typically, it’s wise to have three to six months’ worth of living expenses in this fund. For instance, if your monthly expenses average $4,000, a six-month emergency fund would amount to $24,000.
Car Down Payment: Save 10% or 20% of the Car’s Purchase Price
For a car purchase, a down payment of 20% for a new car or 10% for a used car is advisable. This down payment can help you secure better loan terms and mitigate the effects of depreciation.
Vacation: Save for the Entire Cost of the Trip
If you have a dream vacation in mind, calculating the total expected cost and saving toward it in a HYSA is a smart move. Divide the total cost by the number of months until your vacation to figure out your monthly savings goal.
Assessing Your Financial Situation
Your financial situation is unique, so your savings plan shouldn’t be any different. Assess your income, expenses, and other financial commitments to determine how much you can comfortably save each month. Remember, the idea is to strike a balance between saving for your goals and maintaining a comfortable living standard.
Advantages of High-Yield Savings Account
Depositing money in a HYSA not only helps you reach your financial goals but also earns you a higher interest compared to traditional savings accounts. The high interest rate compounds over time, allowing your money to grow faster.
The Bottom Line
There’s no one-size-fits-all answer to how much money you should put in a high-yield savings account. It boils down to your personal financial goals and circumstances. By assessing your finances and setting clear savings goals, you can better determine the right amount to save in an account, propelling you closer to your financial goals.
Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.
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