Is it better to have two high-yield savings accounts?
The best savings accounts (many of which are online accounts) are paying over 5 percent annual percentage yield (APY). One way to make it easier to earn the highest rate is by having multiple accounts open with different banks.
If you've been stashing your savings deposits in the same account for at least a few years, it's worth checking that the current APY you're earning is competitive with today's top rates. Opening multiple accounts could be one way to ensure that you're maximizing the potential of your savings by earning the top yield.
What are the disadvantages of a high-yield savings account? Some disadvantages of a high-yield savings account include few withdrawal options, limitations on how many monthly withdrawals you can make, and no access to a branch network if you need it. But for most people, these aren't major issues.
Gaines reiterates that even most high-yield savings accounts lose value to inflation over time. “More than two months' worth of living expenses in a savings account is too much given the ability to earn around 5% from easily accessible money market accounts that should not fluctuate in price.”
5% APY: With a 5% CD or high-yield savings account, your $50,000 will accumulate $2,500 in interest in one year. 5.25% APY: A 5.25% CD or high-yield savings account will bring you $2,625 in interest within a year.
Millionaires Like High-Yield Savings, but Not as Much as Other Accounts. Usually offering significantly more interest than a traditional savings account, high-yield savings accounts have blown up in popularity among everyone, including millionaires.
Higher rates: Rates on high-yield savings accounts are approaching 5% right now. That's equivalent to an extra $500 earned on a $10,000 deposit over one year, simply made by transferring funds from a regular account into a high-yield one.
You can't lose your money because, just like your regular checking and savings accounts, the money is insured by the Federal Deposit Insurance Corporation up to $250,000. Of course, the APY for any savings vehicle can go up or down, especially if the Federal Reserve changes its benchmark fund rate.
What are the cons of a high-yield savings account? Variable rates. Interest rates on these accounts can and do fluctuate, which means the APY you started with could potentially drop. Keep your eye on such changes and remember that the money is yours; at any time, you can move it to a bank that offers a higher rate.
CDs typically offer higher interest rates than high-yield savings accounts — but they work a bit differently. With CDs, you typically make one lump sum deposit, which you agree to leave untouched for the term you select.
How long should you keep money in a high-yield savings account?
A high-yield savings account can be a great place to store your emergency savings. Most experts suggest that you should keep between three and six months' worth of expenses in your emergency account at all times.
It's possible, but it isn't realistic for everyone. Living off of interest relies on having a large enough balance invested that your regular interest earnings meet your salary needs. Rest assured that you don't need to earn a million dollar paycheck to reach your goal.
The interest you earn on a high-yield savings account—or any other savings account, money market account or certificate of deposit, for that matter—is subject to state and federal income taxes.
At a 4.25% annual interest rate, your $100,000 deposit would earn a total of $4,250 in interest over the course of a year if interest compounds annually. Annual total: $104,250.
The Bottom Line. If you're wondering where to put your money in a recession, consider a high-yield savings account, money market account, CD or bonds. They can provide safe places to store some of your savings. It's worth noting that a recession doesn't mean you should pull all your money out of the stock market.
Not the best choice for long-term savings – High-yield savings accounts offer much better interest rates than traditional savings accounts, but often, you won't earn enough over the long-term to account for inflation. Investments may be a better option for a longer-term, greater yield.
At this time, no banks offer a savings account with a 7% interest rate. If you can find a savings account with a 7% APY, you'll earn about 15X more than the national savings rate.
Although each financial situation is unique, it doesn't typically make sense for you to keep all of your money in a high-yield savings account. After all, most high-yield savings accounts limit withdrawals to only six per month, so a checking account is typically a better place to store your spending cash.
Millionaires can insure their money by depositing funds in FDIC-insured accounts, NCUA-insured accounts, through IntraFi Network Deposits, or through cash management accounts. They may also allocate some of their cash to low-risk investments, such as Treasury securities or government bonds.
Limited access to your money.
High-yield savings accounts often have fewer withdrawal methods than traditional savings accounts. For example, some online banks don't offer an ATM network, and most savings accounts don't come with a debit card.
Is there a catch with high-yield savings?
With a high-yield savings account, you can expect relatively easy access to your money. Some financial institutions may limit how many free transfers and withdrawals you can make each month, but liquidity generally isn't an issue. That makes a high-yield savings account a good place to store your emergency fund.
For many people, one savings account is enough. A single savings account that earns high yields, has no monthly maintenance fees and is federally insured can be a smart place to park your money. A high-yield savings account can be used for multiple short-term savings goals.
Bank or credit union failures
If your high-yield savings account is held at a federally insured financial institution, your deposits are protected up to $250,000. But if you have deposits that exceed this limit, you risk losing the additional amount if the bank or credit union fails.
How much is too much? The general rule is to have three to six months' worth of living expenses (rent, utilities, food, car payments, etc.) saved up for emergencies, such as unexpected medical bills or immediate home or car repairs. The guidelines fluctuate depending on each individual's circ*mstance.
Your credit score is not directly affected by your checking and savings account activity. That includes account closures. Checking and savings accounts are not considered credit accounts.
