Looking to cash in with a high-yield savings account? Here’s what you need to know

Have you been wondering why people are talking about high-yield savings accounts? Want to know how you could benefit? The Sum has the answers.

TO SUM IT UP

• Interest rates on high-yield savings accounts have increased to pre-pandemic levels.

• While these accounts have a higher yield and are often recommended for emergency funds and short-term savings goals, they’re still not beating inflation … and may not be the best long-term investment play.

• These accounts offer a stable place for you to save while helping you make more off of your money than in a traditional savings account.

THE BACKGROUND

• Consumer banks take their cues from decisions made by the Federal Reserve.

• In 2020, the Fed cut the federal funds rate because of the pandemic. When the Fed raised interest rates (as it did recently for the fourth time this year), banks followed.

• Banks are raising their annual percentage yields (APYs), or rate of return on an investment. That means you can make more interest on the money in your account.

WHAT’S HAPPENING

• Interest rates on these accounts are reaching levels we haven’t seen since early 2020.

• This year, a typical savings account APY has increased from 0.06% to 0.13%.

• The average yield for an HYSA has grown from 0.46% to 1.36%. And some accounts offer even better deals.

• Online-only banks often can give you better rates than traditional ones as they don’t have high overhead costs.

WHY IT MATTERS

• A high-yield savings account offers a way to keep easy access to your savings, especially in case of an emergency. However, you’re limited to six withdrawals a month.

• But inflation is still growing. That means the value of your account won’t keep up with rising prices.

• You can better keep up with inflation by investing, but that comes with risks. Any HYSA you consider should be insured by the Federal Deposit Insurance Corporation (FDIC).

SOURCES

• Bloomberg: Goldman’s Marcus Raises High-Yield Savings Rate to Pre-Pandemic Level
• CNBC: The Federal Reserve just raised interest rates again — here’s why your savings account’s APY may increase; Looking for a safe place to stash your cash? The pros and cons of keeping your money in a high-yield savings account
• The Wall Street Journal: U.S. Inflation Eased Slightly to 8.5% in July
• Marketwatch:

  Get ready for a ‘another big rate hike’ from the Fed today. But here is one simple way you may financially benefit

• Time: A High-Yield Savings Account Generates Free Cash. Here’s How to Find the Right One For You
• FDIC: National Rates and Rate Caps
• Business Insider: Here’s exactly why the interest rate on your high-yield savings account keeps falling
• CBS News: Banks are raising savings rates. Here’s how to find the best place to park your cash.

READ MORE ABOUT THIS IN THE SUM

The Sum breaks down complex economic issues and how they impact your life in just a few minutes a day. Follow thesum.news on Instagram for the full story.

This story was originally published August 30, 2022 at 6:22 PM.

The Sum

mahoningmatters

The Sum breaks down complex economic issues and how they impact your life in just a few minutes a day. Follow @thesum.news on Instagram for the full story.