Why now is a great time to open a high-yield savings account, according to experts
In today's economy every penny counts, and one easy way to save your hard-earned money is to open a high-yield savings account. These accounts offer many of the same perks as regular savings accounts, with the added bonus of earning significantly greater interest.
"High-yield savings accounts are an excellent short-term savings vehicle, offering higher rates than traditional savings accounts," says Mark Stewart, in-house CPA for Step By Step Business. "They are still a liquid investment, so they can be accessed at any time, although you'll be limited to a certain number of withdrawals in a given period. In addition to offering liquidity, they also are low to no-risk investments and are often FDIC-insured."
While high-yield savings accounts are worth opening at any time, they're particularly advantageous now, according to financial experts.
View today's top savings rates here to see how much you could be earning.
All of the experts we spoke with said it's an ideal time to open a high-yield savings account. Here's why.
Interest rates are currently high thanks to a string of rate hikes by the Federal Reserve. While high rates are bad news for borrowers, who pay more interest on the money they borrow, they're great news for savers.
"Interest rates on high-yield savings accounts have not been this high in over 15 years," says Francisco Ayala, CFA, CFP, MBA, financial life planner with The Coleridge Group. "The last time the federal funds rate, which is what most savings accounts are tied to, was this high was prior to the Great Recession. Since then, consumers have not had a reasonable opportunity to earn decent returns on their liquid investments. Consumers were left picking up the financial equivalent of scraps off the floor. Not anymore; there is a bountiful harvest of yield everywhere you look."
Savings account rates are currently around 0.42% on average for regular savings accounts, according to FDIC data, but top high-yield accounts can earn you up to 5% APY or more. That's more than 10 times greater — and that difference can add up fast.
"If you have $50,000 just sitting in a checking or a brick-and-mortar savings account, and you move that to a high-yield savings account that is giving a 4.15% interest rate, you can get more than $2,000 per year in additional interest. All for five minutes' worth of work!" says Alvin Carlos, CFP, CFA, financial planner and managing partner at District Capital Management.
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Inflation may be starting to slow, but it has been a persistent problem for the last two years. And when inflation is high, your dollars are worth less. By putting your money in a high-yield savings account, you can safeguard your savings from significant erosion.
"Over time, cash will always lose to inflation. Managing those losses so it doesn't destroy your ability to achieve your financial goals is necessary," says Jason Preti, CFP, wealth advisor with Unleashed Financial.
Preti continues, "For example, between 2010 and 2020, inflation was sub-2%, and banks paid around 0.1% to 1% interest. That's not a devastating loss of purchasing power. Starting in 2021, we've seen annual inflation of over 6%. Most traditional savings banks did not adjust their interest rates to match. Instead of losing 1% to 1.5% in annual purchasing power, many consumers lose almost 6%. Finding a high-yielding savings account is imperative so your hard-earned cash doesn't decay into pennies."
Don't miss out on extra interest — open a high-yield savings account today!
In addition to the above benefits, switching to a high-yield savings account is incredibly easy.
"The last time high-yield savings account rates were this high, consumers couldn't easily transfer funds between banking institutions to get the best rate possible," says Ayala. "Think back to 2006 when PayPal, Zelle and other forms of electronic transfer were in their infancy or nonexistent. You would have to write a physical check and drive it to a local bank that offered a higher rate, which you had to do a lot of research to find. That process was too time-consuming for busy people."
But technology makes the process of finding and opening a new account much more seamless. "Nowadays, I can shop rates nationally and transfer funds from one bank to another in a day or two from my couch," Ayala says. "Everything is at [your] fingertips. The barriers to financial savviness have come way down since the last high-interest-rate environment."
Opening a high-yield savings account is one of the easiest ways to grow your savings. And with today's high interest rates and lingering inflation, you're really losing out if your money is in a traditional savings account.
"[High-yield savings accounts] have almost no risk and a very attractive return," says Mark Struthers, CFA, CFP, founder and financial advisor with Sona Wealth. "After over a decade of very low rates, savers are financially being treated well. This is a great opportunity for the consumer to take advantage of the inverted yield curve and boost their emergency funds."