What are High Yield Savings Accounts?

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We are discussing all things high yield savings accounts today! What are high yield savings accounts (HYSA) and why you should have one!

This blog is about making personal finance easier. Make growing your money simpler and stress free with a high yield savings account. That being said I do have other regular savings accounts so if you want to learn about those, check out this post.

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Table of Contents

What are High Yield Savings Accounts (HYSA)?

A high yield savings or checking account is pretty much the same as a traditional savings or checking account except for one major distinction, the interest rate offered is significantly higher. 20 to 25 times higher.

According to Bankrate.com the average interest rate on a traditional savings account is 0.06%.

That means if you’re keeping $5,000 dollars in this account, at the end of the year you’ll have earned 3 dollars in interest.

That’s not a lot.

However, most high yield savings accounts interest rates start at 0.50% which would give you $25 and some high yield checking accounts go all the way up to 4% or $200.

Both are significantly more than 3 dollars.

Why doesn’t everyone have a HYSA?

I know what you’re thinking, “why doesn’t everyone just have a high yield account then?”

Well… Traditional banks like Wells Fargo and Chase don’t offer these accounts. You’re much more likely to find one of these accounts at an online bank. There seems to be some “resistance” if you will, for online banks from the older generation.

However, much the same as any other traditional bank, these online banks are federally insured.

This means if there is a bank failure, you are protected! Just make sure any account you open is either a FDIC or NCUA member. So there really is nothing to be afraid of.

Additionally, some people don’t recommend HYSAs because it could be a bit annoying having your money with multiple institutions. However with electronic transfers this shouldn’t be too much of an issue! It hasn’t been for me!

Why is it important to have a HYSA?

Besides the fact you could be earning more money (and who doesn’t like earning more money for no effort at all) the biggest reason to have a HYSA is; put simply: inflation.

Inflation means the gradual rise of prices over time. Alternatively, inflation is the decline in purchasing power.

But what does this actually mean?

Let’s use an example, in 1970 you could buy a cup of coffee for 25 cents. Now finding a cup of coffee for 25 cents would be basically impossible.

So inflation means that prices go up over time.

What we were once able to buy for 25 cents we are no longer able to buy, so your purchasing power has gone down.

The average yearly inflation is 3%. Meaning average prices are increase by 3% every year. Or it takes 3% more money to purchase the same thing year over year.

So what does inflation have to do with a high yield savings account?

Because of inflation, our purchasing power goes down, the value of our money is worth less over time. If we have $10,000 saved and leave it for a year, that money has decreased in value by $300 because prices have gone up.

We not only need to focus on saving money, we need to be vigilant about where we keep that money, in order to combat inflation!

If you’re keeping your money in a regular savings account, the average interest rate is 0.06% which is significantly lower than inflation.

Your money is LOSING VALUE if you leave it in a savings account.

Saving money is already hard, let’s not have it decrease because of inflation.

Math Example

Just in case you need more convincing, let’s compare a regular savings account to a high yield savings account.

Assuming you have 10,000 dollars and hold it for the year.

Savings Account:

Amount Earned: (10,000 *.06%) = 6

Ending Balance: 10,006

Value vs. Inflation: (10,006 – 10,300) = (294)

You LOST 294 because of inflation!

High Yield Savings Account:

Amount Earned: (10,000 * 3.3%) = 330

Ending Balance: 10,330

Value vs. Inflation: (10,330 – 10,300) = 30

You’re keeping up with inflation!

The best way to combat inflation is to get returns that are higher than the average 3% inflation rate.

Ideally, you should be investing as much money as possible to combat inflation the best. However, not all your money should be invested, enter HYSA.

Some money does need to be kept in cash. For example, your Emergency Fund. Keeping your cash in a high yield savings or checking account instead of a traditional savings account will help make sure you are not losing money.

The high yield savings account might not be making too much money, but at least it’s not losing value. Additionally, it is still easily accessible when you need it!

Where do I keep my HYSA?

Just as a reminder, this is not financial advice! This is strictly for education purposes only, this is what I do and what works best for me.

My personal high yield checking account is with Evansville Teachers Federal Credit Union. I chose this Credit Union because they give 3.3% interest every month.

I chose a high yield checking account (instead of a savings account) because of the higher interest rate offered by Evansville Teachers Federal Credit Union. After all, there’s a clear winner when comparing 3.3% to 0.50% and 0.06%.

However, I only keep my emergency fund in this account. I like having a separate account specifically dedicated to my emergency fund.

I used to keep this money in a Wells Fargo savings account where it only made 11 cents a month. With my new account, my emergency fund makes about $48 every month, which is much better than 11 cents!

There are some requirements to get the 3.3% every month, however, I found all of these completely worth the return!

Caveats to Evansville Teachers Federal Credit Union.

There are a few requirements you need to meet to qualify for the 3.3% every month. If you are not going to hit all these requirements GO WITH A DIFFERENT HYSA.

This account is only worth it if you will be making 3.3% interest every month. Don’t waste your time setting up a new account to make no interest!

#1. Must have a balance below $20k: This is the easiest requirement here. If you are using this account for an emergency fund, I don’t think anyone’s emergency fund should be larger than $20k.

#2. Must have 15 debit card transactions: This can seem kind of annoying, who wants to give up credit card rewards? However, I attached the debit card to Venmo to meet this requirement. Anytime I pay someone, it counts towards my 15 debit card transaction. I would set a phone reminder to check how many transactions you’ve made before the month is up.

#3. Must sign in every month: Annoying sure, but easy to do, I login every month when I’m updating my net worth anyway. Again, a simple phone reminder can check this one off.

#4. Must be enrolled for e-statements: You do this when you sign up! Also, yes, let’s save trees.

#5. Must have a direct deposit every month: If you’re still contributing to your emergency fund that will work! If you’re done, I transfer a dollar into this account every month. You can set an automatic transfer and not have to worry about it.

And BAM! There you go! If you can do all these 5 things every month, you have just unlocked a 3.3% monthly return 😉

Final Thoughts

Having a high yield savings account is worth it when it’s combating inflation (on average inflation that is, because this year is out of control).

It doesn’t take any time to set up, you are insured and you’re not LOSING MONEY. It is a win win.

This might be a hot take, but if you’re trying to set up a “high yield savings account” that makes anything less than 3%; I personally wouldn’t bother with it.

Some personal finance bloggers recommend a “high yield savings account” that earns 0.50% and I personally don’t think it’s worth having another account when so little is being earned. You may as well keep it simple and stay with your regular savings account at that point.

Have I convinced you to make a HYSA yet?

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