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So you’ve made a budget, cut out unnecessary spending and found ways to earn extra income. You finally have money to set aside. Great work!
Now the question is: Where will you stash that cash?
If you just let it pile up in your checking account — or worse, stuff it under your mattress — your money won’t be working to its highest potential. You want your savings to grow!
Depending on your goals, there are different ways you should save. You’ll put your money in a 401(k) or an IRA if you’re saving for retirement. If you’re looking to contribute to your kid’s future college tuition bill, you might want to stash your money in a 529 savings plan.
But if you’re saving money for a rainy day or trying to bulk up that emergency fund, a high-yield savings account is the perfect place to store your coins.
What Is a High-Yield Savings Account?
As of Jan. 18, 2022, the national average interest rate for saving accounts was just 0.06%. But high-yield savings accounts can have interest rates of 0.6% —10 times what a traditional savings account might earn.
An interest rate of 0.6% may not sound like a lot, but let’s take a look at a real-life example.
If you put $10,000 in a savings account that earned 0.06% interest, you’d earn $6 in interest by the end of the year.
If you had the same amount of money in a high-yield savings account earning 0.6% interest, you’d earn $60 in interest by the end of the year. That’s $54 more to pad your savings.
For the past couple years, interest rates have been historically low. That means it costs less to borrow money, but the interest rates attached to savings accounts and CDs are also depressed.
During periods of higher interest rates, a high-yield savings account can pay interest of 2% or even 3%.
How You Should Use a High-Yield Savings Account
Typically, you’ll house money in a high-interest savings account for the same reasons you’d use a traditional savings account. High-interest savings…
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