When I was 24 I had a “come-to-Jesus moment” where I realized that I need a lot to get my money together if I want to do it in the adult world. I racked up a ton of credit card debt, didn’t have a budget to talk about other than looking at my account to see if I had money before swiping my card (and sometimes even that), and had very little money money. I was in dire straits, to say the least.
So after I finally got the hang of it (read: found and stuck to a budgeting system that worked for me, paid off my credit cards, and started making good money), I started looking for ways I could use the money. I did something. I’ve been contributing to a 401k and a Roth IRA and still want to build my emergency fund before I think about investing. That’s when I stumbled upon the easiest way to invest in your savings account (ie money) without trying: a high-income savings account.
Below, I break down everything you need to know about advanced savings accounts so you can decide if opening one is right for you. Spoiler alert: my expert bit for other insight believes that everyone should have one.
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What is a High Yield Savings Account?
You probably already have a savings account linked to your checking account, so when I say you need a high-yield savings account, I understand if you’re confused. The main difference between a savings account offered by say, Chase or Bank of America (or whatever institution you pay at), and a high-interest savings account is the amount of interest these accounts earn.
For example, it is common The Chase Savings Account offers 0.01% APY (Chase pays you back for keeping your savings account with them), but high-yield savings accounts can return to the middle. 3-5% per year (note: these rates change based on the federal government’s interest rate, but are always higher than standard savings accounts). If you have $10,000 in your Chase savings account, you will get back $1 for the yearbut with the higher CIT Bank account (which has a 4.75% APY at the time of writing) you’ll get $475 back. That’s a 47,400% increase in income you won’t have to lift a finger for.
What are the benefits of a High Yield Savings Account?
By definition, an advanced savings account will earn you more money than a standard savings account. That alone gives them a bigger check mark in the value column when deciding which account is right for you. Per Allocca, “With a higher interest rate account, you get more interest on the savings you have compared to traditional savings accounts. If you have short-term savings for an emergency fund or other savings goal, a high-yield account is a better option.”
Also, Allocca calls high-interest savings accounts “bad in a good way” because they force you to really think about investing in your savings. “This forces you to be careful about moving money into it and taking money out of it,” says Allocca. Transferring money between your accounts isn’t as easy as clicking a few buttons on your Chase app (which makes it easy to put in your money and hold yourself back from your goals). Instead, your savings account will be less accessible, tricking your brain into thinking that money is not for spending… until you reach your savings goal, that is.
Are there any risks in high-income savings accounts?
When I asked Allocca if there are any cons in choosing a high-income account over a standard one, he really couldn’t think of any. “The only thing that comes to mind is that there are transfer limits – most accounts allow you to transfer money up to 6 times a month, so you’ll want to be aware of that,” says Allocca. If you ask me, all of this is a link to what Allocca said about being careful with your money. But that wouldn’t be a con in my book.
Advanced savings accounts are like cheat codes (and something else we should be teaching about in school), but there are really few, if any, things that come down to having your savings n ‘one. All these records federal insurance up to $250,000which means that in an unexpected event the bank you choose fails, your money is not safe.
How to get the most out of your advanced savings account
Once you’ve decided to move your money into an advanced savings account of choice (I’m based on Nerd wallet to help me with such decisions), you may be wondering what to do next. It’s as simple as transferring the money you’re saving (or want to start saving) into your regular high-yield account. My husband and I have set up automatic money transfers so that any money goes into our account every month without thinking too much about it.
Once you’ve set up your account and started saving, it’s time to define your goals and start working towards them. Allocca and I use Ally for advanced coin accounts and see different “buckets” that allow you to invest your money. These buckets allow you to work towards many different goals at the same time. My bucket changes based on my current goals, but there is an emergency fund at a minimum. Back when we were planning our honeymoon, my husband and I had a “Honeymoon” bucket that we used to save money for our trip. We now have a “Home Improvement” fund to save for various projects around our home.
When it comes to setting your own goals, I recommend taking a hard look at your finances and figuring out what to do first. Back when I was 25, I started small by creating an emergency fund that I could fall back on if the worst happened (car trouble, job loss, etc.) and then started saving for other things once I was fit. comfort with the money (eg. a European vacation, a deposit on a new car, that expensive purse I’ve been eyeing… you get the idea).
When it comes down to it, everyone’s goals and financial situation are different, but one thing none of us should do is leave money on the table. With an advanced savings account, you will reach your goals faster because of the extra, free money in your account.