Many people want to find ways in which they can ‘set it and forget it’ and have their money passively make more money for them. However, some people still are confused as to what a high yield savings account (HYSA) is, how it works, and why they should have one.
In the pursuit of financial independence and early retirement, one of the key strategies to optimize your savings is by utilizing a HYSA. In this article, we’ll answer the three most common questions about high-yield savings accounts and explain why having one can be beneficial for your financial journey.
A high-yield savings account, also called a HYSA, is an online savings account which offers competitive APY (annual percentage yield), as much as 20 to 25 times higher than a traditional savings account. In short, the amount of interest you can earn on a HYSA as compared to a traditional savings account is huge!
These accounts are typically offered by online banks or credit unions and are designed to help you grow your savings more effectively, by reducing the upfront costs that a traditional bank might have (like having a physical location for example!). Because the interest rates for HYSAs are several times higher than those offered by brick-and-mortar banks, your money is working harder for you while sitting in an account.
HYSAs work very similarly to traditional savings accounts. You deposit money into the account, and the bank pays you interest on the balance. The main difference is in the interest rates. While some traditional savings accounts have interest rates as low as 0.01% APY, high-yield accounts earn around 4% APY currently!
Having a high-yield savings account can bring several advantages on your path to financial freedom:
Increased earning potential: The higher interest rates offered by high-yield savings accounts mean that your money will grow faster compared to a traditional savings account. This accelerated growth can provide a significant boost to your savings over time, helping you achieve your financial goals sooner.
Safety and security: High-yield savings accounts are typically offered by reputable online banks or credit unions that are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).
Flexibility and accessibility: Despite the higher interest rates, high-yield savings accounts still offer the flexibility and accessibility you need. You can access your funds online, transfer money easily, and make withdrawals without any hassle. This ensures that your money remains readily available for emergencies or other financial needs.
Personally, I keep my Emergency Fund in a HYSA through Marcus by Goldman Sachs. They have an APY of 4.15%, but with a referral bonus you can get an additional 1.00% APY for your first three months (i.e., 5.15% APY for your first 3 months!). If you use my referral bonus link, I also get the 1% bonus for 3 months.
I use this account because it has one of the most competitive offers on the market for APY and I enjoy the ability to share the 1% bonus with others! As I am trying to build my Emergency Fund to 3 months worth of expenses currently, having an additional amount of money come in through interest just by having my money that I’ve saved thus far sitting in a HYSA is reassuring!
Opening a HYSA is a smart financial move. With higher interest rates, safety, and accessibility, these accounts allow your savings to grow at an accelerated pace while providing the flexibility you need. Consider opening a high-yield savings account and make your money work harder for you on the journey to financial freedom.
