ARE YOU USING A HIGH YIELD SAVINGS ACCOUNT?

Where are your cash reserves located? This is one of the first questions I ask prospective clients. Often, they keep their cash reserves in their checking account or a separate savings account at a big bank or local credit union. As I'm writing this blog, many high yield savings accounts are paying 5%. That's 5% to simply park your cash reserves in their account, risk free. High yield savings accounts (HYSA) have become more popular over the last two years due to the high interest rate environment. As the Federal Reserve has increased interest rates to battle inflation, the interest rates offered in HYSAs have also increased, which can benefit savers. 

For example, let's say you keep $40,000 in cash reserves. You can earn 5% annually in your HYSA. This would be roughly $166 per month. Let's say you’re saving for a large purchase like a home, and you've saved $120k in your HYSA. This would earn $500 per month! 

These accounts are typically offered by online banks. Although I am beginning to see local credit unions increase their rates as well (typically with an account minimum). While the idea of an online bank can often raise concern for some, a little research can put your mind as ease. Find a HYSA that is FDIC insured, has no account minimums, or account fees. There are several great options. Here are a few of my favorites along with their current rate (as of 4/18/24).

Betterment - 5% (5.5% for new customers)

Ally - 4.25%

Sofi - 4.6%

Marcus by Goldman Sachs - 4.4%

With the talk of interest rates decreasing, is it too late? HYSAs adjust with the market rate. While the Federal Reserve has hinted as decreasing rates, it looks as though rates will remain high for much of 2024 and into 2025. Even when rates eventually decrease your HYSA will earn more than your traditional bank or credit union. So, find a good HYSA and put your cash reserves to work!