As the Fed continues working to lower inflation, interest rates are still running high. This makes now a good time to put your money in a savings account where you can get a high enough return to help offset cuts in purchasing power. Compared to traditional accounts, high-yield savings accounts are a much more profitable option. They’re also widely available, especially through online banks, and offer flexibility and safety.
Here are five reasons to consider putting your cash in one before this year ends.
1. You Can Enjoy High Interest Rates While They Last
Leaving money in a traditional savings account could get you the national average interest rate of 0.45% or even a much lower 0.01%. This doesn’t help much to offset the year-to-date inflation, which was 3.7% in August.
On the other hand, popular online savings accounts from banks such as Ally and Capital One are currently paying over 4%. This means your money can do more than just keep up with inflation.
Depositing your money now is important so you can benefit while this high interest rate environment lasts. High-yield savings accounts have variable interest rates that banks can adjust at any time. Eventually, the Fed will start lowering rates, and your savings account rate will likely drop accordingly.
2. You Can Easily Access the Money
Although CDs can offer comparable rates, they lack the accessibility that high-yield savings accounts offer. Rather than having your cash tied up for months or years, you can withdraw funds from your high-yield savings account at any time. This makes them a safe option even for saving for emergencies.
Banks offering these accounts usually provide multiple options to manage your money. Bank account transfers are very common, but your bank might offer cashier’s checks, give you an ATM card or even allow in-person transactions. It’s also easy to add money to the account at any time, something you usually can’t do after funding a CD.
3. There’s Usually No Risk
Compared to investing in bonds, stocks or cryptocurrency, you usually don’t have to worry about your high-yield savings account losing its value. Most financial institutions have deposit insurance either through the National Credit Union Administration or Federal Deposit Insurance Corporation. This offers peace of mind in case of a bank failure and makes the accounts suitable even for the most cautious savers.
Typically, the insurance covers a minimum of $250,000 of your cash at a particular institution. If you have more, you could just get high-yield savings accounts at multiple banks. Just make sure you verify the bank or credit union is insured before you open an account.
4. The Account Suits Various Savings Goals
A high-yield savings account’s flexibility makes it versatile enough for most savings goals. One common use is for an emergency fund to cover a few months of your expenses. However, this account can also hold money for a home or car down payment, wedding, dream vacation or other major purchase. It could even supplement your retirement investments when you want some liquidity and no risk.
Your chosen bank may include features with your high-yield savings account that make meeting your goal easier. For example, you might set up automatic transfers to save time or access budgeting tools that help you find money you could save. There may also be a savings bucket feature to conveniently allocate cash to different goals.
5. You Can Often Avoid Fees and Certain Requirements
Although financial institutions have different policies, you can find plenty of high-yield savings accounts that are easy to obtain and don’t cost you money. Several options don’t require you to deposit a certain amount of money to get an account or keep a minimum balance to earn the stated interest rate. And when you get a high-yield account from an online bank, you’re less likely to have a monthly service fee.
However, something to look out for is any maximum transaction limit. Some banks limit certain transfers and withdrawals to six for each statement cycle. A fee might apply after that, and certain banks, like Synchrony, may even close your account. One upside is you won’t encounter any early withdrawal fees like you would with a less flexible CD.