High-Yield Savings Accounts (HYSAs): Explained

When you are paying off debt, interest can be your worst enemy. But when you are investing or saving money, interest can be your best friend. In the same way interest can really hurt you, it can really help you, too.

Since we’re talking about saving money, interest can be on your side, but you have to take advantage of it. If you want to make more money and give your savings a major boost, you’re going to want to open a high-yield savings account (HYSA), and this post will show you why.

This post is all about explaining High-Yield Savings Accounts.

High Yield Savings Accounts

Why a HYSA Can Boost Your Savings

If you have a regular savings account (not a high-yield savings account) you likely have a really low interest rate. According to BankRate, “the average interest rate for savings accounts is 0.1 percent.”

You might be wondering, why does my interest rate matter? Your interest rate matters because it determines just how much your savings can grow on it’s own.

Here’s an example:

If you put $2,000 into a regular savings account with an interest rate of .1% (the average interest rate), after a year, if you add no more money to that account, you will have $2,002. In other words, after a year, you will have made just $2 on your account because of your low interest rate.

Yes, you made some money on your account because of interest, but you could be making more than just $2 a year by switching to a high-yield savings account.

Now, let’s take a look at a high-yield savings account instead.

High-yield savings accounts have what’s called an Annual Percentage Yield (APY). It’s a fancy way of saying how much money your high-yield savings account can earn in a year’s time, and is similar to interest. According to Ally, an online bank, “APY indicates the total amount of interest you earn on a deposit account over one year, assuming you do not add or withdraw funds for the entire year”.

So, let’s say instead you decide to open a high-yield savings account with Ally instead, which currently has an APY of 1.0% .

If you put your $2,000 into your Ally high-yield savings account instead, after one year, if you add no more money to it, you will earn about $20 on it. In other words, at the end of one year, you will have $2,020 in your high-yield savings account.

$2,020 sounds better than $2,002, doesn’t it? And that’s all because you simply put your money into a high-yield savings account with a higher interest rate instead of a regular savings account with a lower interest rate.

This difference here might not seem like a lot right now, but the more money you have in your high-yield savings account, the more you can benefit from having a higher APY. And remember, this is money you earn by simply letting your money sit in your savings account.

Here’s an example if you have $5,000 in savings:

Regular Savings Account High-Yield Savings Account
Interest Rate/APY 0.1% 1.0%
Starting Balance $5,000 $5,000
Balance After One Year $5,005 $5,050

So, why not open a high-yield savings account?

The Higher the APY, the Better:

Ally High-Yield Savings Accounts
Photo by Ally.com

How to Find a High-Yield Savings Account

To find a high-yield savings account, you can simply search for one on Google. You’ll notice a lot of high-yield savings accounts are offered by online banks. Online banks are typically able to offer higher APYs because they don’t have to pay for the costs associated with having brick and mortar buildings.

I use an online bank called Ally for my high-yield savings account and I keep my emergency fund in this account. I like Ally because their website is easy to use. Ally currently offers a 1.0% APY, but there are various other banks out there that offer comparable rates.

This post was all about explaining High-Yield Savings Accounts.

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About Taylor

About Taylor

A few years after graduating college, Taylor made it her mission to become debt free. After paying off all $60k of debt, she began to blog about what she's really passionate about: personal development. Nowadays, Taylor blogs about the topics of Mindset, Money, Health, and Career for women.

"It's Per$onal" is a super popular and anonymous blog series about the personal lives and finances of women all over the world. Check it out!

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