Is now the best time to open a high-yield savings account?
Interest rates are the highest in 22 years, inflation is still consistent (if cooled) and concerns over a credit downgrade are fresh in Americans' minds. Amid these developments, savers would be forgiven for being upset about their finances. There is, however, a silver lining to the current state of the economy: Higher interest rates mean greater returns on your savings.
After hovering near record lows during the start of the pandemic, interest rates have risen exponentially in the last 18 months, making now arguably the best time to open a high-yield savings account in recent memory. These accounts operate just like regular savings accounts do, albeit at an elevated interest rate.
Is now the best time to open a high-yield savings account?
It wasn't that long ago when high-yield savings accounts were earning 2% APY or less. But as inflation ramped up and the fight to tame it increased in tandem, the Fed started raising rates. While this has made loan borrowing much more expensive, it's also made high-yield savings and certificates of deposit accounts that more attractive.
How much more attractive? Look to a regular savings account interest rate to compare. According to the FDIC, the rate on these accounts is currently 0.42%. But rates on high-yield accounts can easily be secured in the range of 4% to 5%. If you shop around and are comfortable using an online bank, you may even be able to secure a rate above that 5%.
While it's certainly possible that that rate could go even higher in the future, most signs are pointing to a pause in additional rate hikes before an eventual drop later in 2023 or 2024. If this is true, then now may really be the best time to open a high-yield savings account.
Get started with a high-yield account here now and start earning more money!
How much can you make with a high-yield savings account now?
If you want to determine the true value of a high-yield savings account it may be worth crunching the numbers (just note that if you're using a regular account you're likely losing money). Here's how much you could make with a $1,000 deposit:
- After a year with a regular account at 0.42%: $1,004.20
- After a year with a high-yield account at 4.50%: $1,045.00
- After a year with a high-yield account at 5.00%: $1,050.00
And here's what you could expect to make with a $5,000 deposit:
- After one year with a regular account at 0.42%: $5,021.00
- After one year with a high-yield account at 4.50%: $5,225.00
- After one year with a high-yield account at 5.00%: $5,250.00
And those figures are capped at 5% APY. As mentioned above, if you shop around online, you may be able to find a bank that offers an even higher rate.
Other high-yield savings account benefits to know
While a higher interest rate is the most appealing feature of a high-yield account, it's not the only benefit. Here are two others to know:
- Flexibility: Because these accounts operate like regular savings accounts — and not like CDs, which lock your money away for a full term — users can expect flexibility and ease of use. Some banks will even provide debit cards so that you can access your high-yield savings account from wherever you may be.
- Protection: Banking concerns were high earlier this year following two bank failures, prompting many to take a closer look at where they keep their money (and how much they keep in the bank). But that won't be a concern with high-yield savings accounts as they are FDIC-insured up to $250,000 per account, per institution.
Does a high-yield savings account sound beneficial to you? It's easy to get started today!
