Maximizing Emergency Savings: How High-Yield Accounts Outperform Traditional Options
- tonyamanning1
- Dec 23, 2024
- 3 min read
Experts all over tout the necessity of a 3-6 month emergency fund, and we agree that having a large, liquid fund available is a valuable step in creating financial security. When we calculate the amount, for the majority of individuals and couples this fund amounts to a lot of money.
One of the most frequent concerns presented by our clients is around the money "just sitting there." If you are like most people who have a savings account attached to their checking account, you've probably seen the $0.02 interest payment hit your account. It's typically a bit underwhelming. That is because the average interest offered by most banks and credit unions on savings accounts is currently 0.42%, which is actually a great improvement from the 0.07% of just two years ago.
Enter the High-Yield Savings Account. Most high-yield savings accounts are offered through online banks. These banks do not have the overhead associated with operating brick-and-mortar locations and have used this advantage to offer customers higher rates for storing money with them. Although these banks do not operate out of physical locations, they are just as credible as other banks and credit unions and carry the same Federal Deposit Insurance Corporation (FDIC) protections. These accounts come with ATM cards just like other banks, but many do not have debit or check writing ability. Most offer the ability to use other banks' ATMs or storefronts like the UPS Store to do cash transactions.
How do I find a High-Yield Account?
Here are a few options available for those ready to start earning a bit more. None of these banks are endorsed by us, and we receive no referral bonus for using the links. The list is provided for your convenience. Interest rates vary based on the rates issued by the Federal Reserve, so the rates you see when clicking on the links may be slightly different depending on when you are reading this article.
High-Interest Savings Account Options
EverBank: 4.75% APY, no minimum balance to open, Member FDIC.
My Banking Direct: 4.75% APY, $500 minimum to open, Member FDIC.
TAB Bank: 4.52% APY, no minimum balance to open, Member FDIC.
Bread Savings: 4.65% APY, $100 minimum to open, Member FDIC.
Popular Direct: 4.60% APY, $100 minimum to open, Member FDIC.
First Foundation Bank: 4.75% APY, $1,000 minimum to open, Member FDIC.
Bask Bank: 4.65% APY, no minimum balance to open, Member FDIC.
UFB Direct: 4.31% APY, no minimum balance to open, Member FDIC.
LendingClub: 4.00% APY or 5.00% with $250 monthly deposit, no minimum balance to open, Member FDIC.
Is it really worth it?
To compare numbers between a typical savings and a high-yield savings, the table below shows the amount you would earn in a year in each type of account with the same amount saved. The second table shows the compounding effect in action if you were to do nothing after the initial deposit over the course of 10 years.
As you can see, the difference in interest earned is quite substantial. For example, on a $50,000 balance, you'd earn $210 with the 0.42% APY account versus $2,375 with the 4.75% APY account - a difference of $2,165 per year.
The difference in value is even more compelling when results are observed over time. For each balance, the compounded interest results in a return of over 50% of the initial value over the course of 10 years, with no additional money added. This is HUGE!
So, if you take a small extra step to set up a high-yield account for the money you aren't planning to touch, it will be doing far more than "just sitting there!"
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