When should you use a high yield savings account? 5 scenarios
If you need to save up toward a big expense, a high-yield savings account might be able to help you reach your goal a lot faster. (iStock)
As you might be able to guess, a high-yield savings account (HYSA) is different from a traditional savings account in a few key ways. Namely, this type of savings account comes with a much higher savings rate. For example, while the average interest rate on a traditional savings account is just 0.05%, according to the FDIC, it’s possible for the annual percentage yield (APY) on a high-yield savings account to reach 2%.
With numbers like those, it's no surprise that many people use high-yield savings accounts to help them achieve some of their most important financial goals.
If you're interested in opening a high-yield savings account, head to online marketplace Credible. Credible can tell you the minimum balance requirement, APY, and whether an account is available in-person, online-only, or both.
When should you use a high-yield savings account?
We've listed out five times that it makes sense to use a high-yield savings account. Keep reading to learn more.
- Emergency fund
- Down payment on a home
- Tax fund
- Wedding fund
- Other large purchases
1. Emergency fund
The first scenario where you might consider using a high-yield savings account is for your emergency fund. In addition to offering higher interest rates, this type of account gives you more liquidity than a certificate of deposit (CD) or other long-term investment vehicles.
At its core, that liquidity means that you’ll have the ability to access the funds whenever you need them, rather than having to wait a certain amount of time to make a withdrawal. In fact, most HYSAs and money market accounts allow you to withdraw up to six times per month, similar to a traditional savings account.
Let your high-yield savings account do the heavy lifting when it comes to earning interest on your hard-earned money. Open a high-yield savings account today to start collecting cash.
PROS AND CONS OF HIGH-YIELD SAVINGS ACCOUNTS
2. Down payment on a home
Another instance where you might want to consider using an HYSA is when you're ready to save for a down payment on a home. These days, most down payments range from 3% to 20% of the home's purchase price, which can add up to a sizable sum. However, you will likely get to your savings goal much faster if your money is earning interest above the benchmark rate.
That said, if you're going to go this route, you may have to be prepared to make a larger-than-normal initial deposit. Some HYSA accounts have minimum deposit requirements that can be steep. Others require you to maintain a certain minimum balance in the account in order to avoid supplemental fees like a monthly service fee.
No matter how much money you have to deposit, you can start earning extra cash with high-yield savings account options from Credible.
OPEN A HIGH-YIELD SAVINGS ACCOUNT TO EARN MORE INTEREST ON YOUR MONEY
3. Tax fund
If you work for yourself and have to save up for tax time every year, a high-yield savings account might be the best way to manage your tax fund. In this case, the higher interest rates offered by HYSAs can help provide you with a substantial cushion in the event that you accidentally miscalculate your next tax bill.
However, it's important to note that the interest rates that you receive from deposit accounts like these may not be as high as they once were. Brick-and-mortar and online banks alike have lowered their rates recently following a series of interest rate cuts by the Federal Reserve. Still, even the lower interest rate will be much higher than a traditional savings account.
Credible can explain the process of opening a high-yield savings account via an online bank. Follow these steps to open up a high-yield savings account and save more money now.
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4. Wedding fund
Next, if you are saving up toward a big event like a wedding, an HSYA can be a great way to make the most of the money that you're able to put aside. Again, in addition to earning money at a higher interest rate, the liquidity of a high-yield savings account makes it a good fit for funds like these.
First, setting money aside in a dedicated savings account will help you avoid accidentally spending the money on unrelated purchases. Additionally, the liquidity of a savings account makes it easy to pull money out whenever you do need to cover an expense.
HOW TO CHOOSE A HIGH-YIELD SAVINGS ACCOUNT
5. Other large purchases
You should consider using a high-yield savings account whenever you need to save up for a large purchase. Whether it's a new car, a lavish vacation, or something else entirely, using an HYSA can help you to reach your goals faster. The only major caveat is that you don't want to pull from these funds too often. After all, the amount of interest that you earn builds up as you put more money into the account.
The bottom line
If you think you're ready to open a high-yield savings account, be sure to do your research first. You'll want to make sure that you're aware of any fees that you may be charged. In addition, make sure that you know whether opening the account will affect your credit score.
While most banks only do a soft pull on your credit, some do a hard pull, which can have a greater impact on your FICO score and your credit history overall.
Visit Credible to get a sense of the high-yield savings account options that are available to you.