As you start earning money from your first job or when you join the workforce after college, managing your finances wisely is crucial for building a secure future. A simple strategy to grow your earnings is by opening a high-yield savings account (HYSA). In this article, we’ll explain what high-yield savings accounts are, how they differ from a regular savings account, their benefits and drawbacks, and how they can support your financial goals! 

Understanding high-yield savings accounts

A high-yield savings account is a type of bank account that offers a significantly higher interest rate compared to traditional savings accounts. An interest rate is the percentage of your savings that the bank pays you in a year for keeping your money in the account. For example, if you have $1,000 in an account with a 4% interest rate, the bank will expect to add $40 to your savings after one year, depending on how often the interest compounds. It’s like a reward for saving your money! 

While a standard savings account might offer an interest rate or annual percentage yield (APY) of around 0.01%, HYSAs can provide APYs ranging from 4% to 5% or more, depending on the bank and the country’s economic conditions.

Comparing regular savings accounts and high-yield savings accounts

When deciding where to save your money, it’s helpful to know the difference between a regular savings account and an HYSA. Here are some important distinctions between the two: 

Interest rates (APY)

• A regular savings account typically offers an APY of around 0.01% to 0.10%.
• A high-yield savings account will likely offer significantly higher APYs–up to 5% or more.

Accessibility

• Regular savings accounts are offered by traditional banks, where you can access in-person services at one of their branches.
• High-yield savings accounts are usually offered by online banks, which may have limited or no in-person services for customers.

Fees

• Regular savings accounts often have monthly maintenance fees or minimum balance requirements, which can reduce your savings.
• Many HYSAs have no monthly fees or minimum balance requirements.

Purpose

• Regular savings accounts might be more convenient for everyday banking needs or as a companion to a checking account.
• HYSAs are ideal for longer-term saving goals because of their higher earning potential. 

Here is a scenario to show how your savings might grow in a regular savings account versus a high-yield savings account over time. Let’s say you start with an initial deposit of $1,000. You make monthly contributions of $50 for 5 years. Here is how your money will grow in each account:

With the HYSA, you basically earned $484 just for letting your money sit in that account! Check out this interest calculator to continue to illustrate this point. 

Choosing the right high-yield savings account

When choosing a high-yield savings account, consider the following factors:

Interest rates or APY

Look for accounts offering competitive interest rates. As of November 2024, some accounts offer APYs as high as 7% to 10% for teens, though these rates may only apply to lower balances. Regardless, you should look for rates of at least 4%.

Fees

Ensure the account has low or no monthly maintenance fees, as these can eat into your earnings.

Minimum balance requirements

Some accounts require a minimum balance to earn the advertised APY or to avoid fees. Choosing a lower minimum balance means you can start right now with less money up front.

Accessibility

Consider how easily you can deposit and withdraw funds. Online banks may offer mobile check deposits and ATM access, but be sure to verify these features before opening an account.

FDIC insurance

Confirm that the bank is FDIC insured to protect your deposits up to $250,000. This basically means that the government is saying that this bank is safe to put your money into! 

Building generational wealth starts with saving

Saving money isn’t just about preparing for emergencies or big purchases—it’s about building a foundation for generational wealth. By starting with an HYSA, you’re taking a crucial step toward managing your money wisely and setting the stage for long-term financial stability.

One of the biggest misconceptions about saving is that you need a lot of money to get started. That’s not true! Even saving $10 or $20 each month can make a difference. Here’s how:

Example: Starting Small

• Initial deposit: $50
• Monthly contributions: $25
• Savings period: 10 years
• APY: 4.50%

With consistent contributions of just $25 per month, you can save nearly $4,000 in 10 years, with over $765 of that being interest earned!

This growth is the result of compound interest, where your savings earn interest, and that interest earns interest. Over time, this creates a snowball effect that turns small, consistent savings into a much larger amount. These kinds of savings can help you build an emergency fund, save for short-term goals like buying a car, avoid debt, and develop positive financial habits that you can use the rest of your life!

By starting small, thinking long-term, and choosing tools like HYSAs to grow your money, you can take control of your financial future and inspire those around you to do the same. Remember, the earlier you start saving, the more time your money has to grow, thanks to the power of compound interest.

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