Editor's Note: APYs listed in this article are up-to-date as of the time of publication. They may fluctuate (up or down) as the Fed rate changes. CNBC will update as changes are made public.
It's good to have a separate savings account for your emergency fund and short-term savings goals, rather than keeping all your money in a checking account where you might be more tempted to spend it.
And if your money is going to sit in savings, you should try to make the most of it. With a high-yield savings account, you earn more interest than with a traditional savings account. Thanks to compound interest— which means your cash is earning interest on interest— your money grows at a faster rate.
CNBC Select ranked the five best high-yield savings accounts, and each one could earn you at least 10X more money than the national average APY on savings accounts, which is just 0.04%, according to the Federal Deposit Insurance Corporation (FDIC).
Below, we list the three best uses for stashing your cash in a high-yield savings account.
1. Emergency funds
During economic downturns, such as the one we are experiencing right now, it's essential to have an emergency fund to fall back on. While financial experts generally recommend having enough saved to cover at least three to six months' worth of expenses, this may not be realistic for everyone. Your best bet if you have extra cash is to put it in a high-yield savings account that can increase your savings but give you the option to withdraw the money if you need to. By law, consumers can withdraw or transfer cash out of a high-yield savings account up to six times per month without paying any fees.
Currently, this rule has been temporarily lifted, allowing savings account holders to "make an unlimited number of convenient transfers and withdrawals from their savings deposits," according to a statement by the Federal Reserve Board.
CNBC Select ranked the Synchrony Bank High Yield Savings as the best choice for easy access to your cash since it offers users convenient withdrawal options, including an optional ATM card.
2. Short-term savings
It's fun to have a savings goal in mind, and it's even better when you have a strategy in place to help get you there on time.
For this reason, high-yield savings accounts are "a fantastic way to save up cash for short-term goals or needs that are within a year or two," Shon Anderson, a certified financial planner and president at Anderson Financial Strategies, tells CNBC Select.
This might include saving up for a family vacation or a new car.
And if you're someone who needs a little motivation to save, the Varo Savings Account offers tools to help you. Not only does it offer a higher rate of return, or APY, if you save more, but the online bank also offers two programs: Save Your Pay and Save Your Change. Both options automatically transfer money from your Varo bank account to your savings account.
3. Large expenses
A higher yield on your money can really help you when saving up for a large purchase, such as a down payment on a home. You'll earn more with compound interest if you put your money into a high-yield savings account.
For example, with the Vio Bank High Yield Online Savings Account, account holders get one of the highest APY rates for high-yield savings accounts, at 1.10%. There is a minimum $100 deposit required to open an account, but that is lower than what some of the other high-APY savings accounts require. This can really benefit you over time.
If you were to put $10,000 into a Vio high-yield savings account, your deposit could yield $58 after just one year.
Information about the Synchrony Bank High Yield Savings,Vio Bank High Yield Online Savings Account, and Varo Savings Account has been collected independently by CNBC and has not been reviewed or provided by the bank prior to publication. Synchrony Bank is a Member FDIC. Vio Bank is a division of MidFirst Bank, Member FDIC. Varo Bank Account Services are provided by The Bancorp Bank, Member FDIC.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
FAQs
High-yield savings accounts earn a higher-than-average annual percentage yield (APY), helping your savings work harder for you. You can use a high-yield savings account to save money for emergencies, major purchases and other financial goals, earning interest while still enjoying easy access to your cash.
What should you use a high-yield savings account for? ›
High-yield savings accounts earn a higher-than-average annual percentage yield (APY), helping your savings work harder for you. You can use a high-yield savings account to save money for emergencies, major purchases and other financial goals, earning interest while still enjoying easy access to your cash.
Can you pay for a car from a high-yield savings account? ›
Short-term savings goals: High-yield savings accounts are also a good way to save for short-term goals, such as saving for a vacation or a car. If you want to pay for something in the next few months, you don't want to put your money into risky investments like stocks.
Who typically uses a high interest savings account? ›
Best uses for a high-yield savings account
Your money is parked in a safe place, and the APY boosts your savings balance. You can also use high-yield savings accounts to put money away for short-term goals, such as the down payment on a house, a big vacation or a rainy day fund to cover repair or maintenance expenses.
What is the catch to a high-yield savings account? ›
A high-yield savings account offers a higher rate of return on your money compared to standard savings accounts. But some of these accounts charge fees, have minimum balances requirements, and offer variable interest rates that can go up and down over time.
Should I put all my money in a high-yield savings account? ›
Although each financial situation is unique, it doesn't typically make sense for you to keep all of your money in a high-yield savings account. After all, most high-yield savings accounts limit withdrawals to only six per month, so a checking account is typically a better place to store your spending cash.
Do millionaires use high-yield savings accounts? ›
Millionaires Like High-Yield Savings, but Not as Much as Other Accounts.
How much will $10000 make in a high-yield savings account? ›
In fact, rates on high-yield savings accounts are currently hovering around 5%, and you may be able to find something even higher if you shop around for an online bank. On a $10,000 deposit, that would equate to $500 after one year.
Can I withdraw all my money from a high-yield savings account? ›
Many HYSAs also have similar withdrawal limits to traditional savings accounts, traditionally six withdrawals per month. However, the Federal Reserve Board currently allows consumers to make unlimited withdrawals.
Are there downsides to high-yield savings accounts? ›
Some disadvantages of a high-yield savings account include few withdrawal options, limitations on how many monthly withdrawals you can make, and no access to a branch network if you need it. But for most people, these aren't major issues.
As of April 2024, no banks are offering 7% interest rates on savings accounts. Two credit unions have high-interest checking accounts: Landmark Credit Union Premium Checking with 7.50% APY and OnPath Credit Union High Yield Checking with 7.00% APY.
Do you have to pay taxes on high yield savings account? ›
The IRS treats interest earned on a savings account as earned income, meaning it can be taxed. So, if you received $125 in interest on a high-yield savings account in 2023, you're required to pay taxes on that interest when you file your federal tax return for the 2023 tax year.
Can you pay bills from Hysa? ›
Some HYSAs offer ATM access and/or check writing along with online banking, mobile deposit, and other services. But typically these accounts are not intended to be used for everyday spending or bill paying. Policies vary by bank, but some HYSAs require minimum opening deposits or average balances.
What happens if you put 50000 in a high-yield savings account? ›
5.5% APY: Choosing a 5.5% CD or high-yield savings account will result in $2,750 in interest on your $50,000 investment annually. 5.75% APY: A 5.75% CD or high-yield savings account will earn you $2,875 in interest in one year.
How long do you need to keep money in a high-yield savings account? ›
Your emergency fund
A high-yield savings account can be a great place to store your emergency savings. Most experts suggest that you should keep between three and six months' worth of expenses in your emergency account at all times.
How much is too much in high-yield savings account? ›
Gaines reiterates that even most high-yield savings accounts lose value to inflation over time. “More than two months' worth of living expenses in a savings account is too much given the ability to earn around 5% from easily accessible money market accounts that should not fluctuate in price.”
Is there a downside to a high-yield savings account? ›
Some disadvantages of a high-yield savings account include few withdrawal options, limitations on how many monthly withdrawals you can make, and no access to a branch network if you need it. But for most people, these aren't major issues.
How much will 50000 make in a high-yield savings account? ›
5.5% APY: Choosing a 5.5% CD or high-yield savings account will result in $2,750 in interest on your $50,000 investment annually. 5.75% APY: A 5.75% CD or high-yield savings account will earn you $2,875 in interest in one year.
How much interest does $1000 make in a year? ›
How Much Interest You Will Earn on $1,000
| Rate | 1 Year | 10 Years |
|---|
| 0.00% | $1,000 | $1,000 |
| 0.25% | $1,003 | $1,025 |
| 0.50% | $1,005 | $1,051 |
| 0.75% | $1,008 | $1,078 |
57 more rowsApr 20, 2020
