Money Hacks, Uncategorized

Why and how to use a high-interest savings account

High-yield savings hacks

 

In my student loan hack and swagbucks savings articles, I talk about using a high-interest savings account.  These methods are both about taking advantage of higher returns on money that you need to keep easily accessible.  Using a high-interest savings account is key to making your money work for you!  This article will cover the basics of why you should us a high-interest savings account, and how to use a high-interest account to maximize your benefits.

What is a high-interest savings account?

High-interest savings accounts, also known as high-yield or money market accounts, are accounts that get more than 1% interest.  These types of accounts are often offered through online banks, some although traditional banks offer them too.

When finding a high-interest account, I always refer to this post from nerdwallet – they list the best rates currently available and give you a breakdown of the best high-yield savings accounts on the market right now.

You can open a high-interest savings account the same way you open a regular account!  You need your personal information, a valid ID, and information to access funds (routing numbers and bank accounts for your current bank).  And, of course, funds that are ready to transfer!

Note: Always read the fine print!

Some high-yield accounts come with yearly fees, minimum balance limits, and monthly transfer limits.  Institutions may only offer high-yield rates for a certain amount of time, after which the interest rate drops .  When you open an account, always read the documentation presented to you so you are aware of the requirements your account has!  This will save you from breaking the rules and having to pay fines or additional fees!

It’s also important to note that some high-yield account state that the interest rate is subject to change without notice.  On my high-yield accounts, I make sure to check the interest rate each time I log in.  It’s not a high-yield account if your interest rate drops below 1%!

What money should I put in a high-interest account?

Any time I find I have money sitting around my checking account, I move it to a high-interest account until I decide how to use it.  High-interest accounts are great for funds that will be there more than a few months, but need to be accessed easily or quickly.

This money is for medium-term usage.  That means 6 to 18 months.  Money you will use in less than three months is better left in a traditional savings account.  This is because most high-interest accounts have strict limits on the number of transfers you get each month, and you don’t want to be moving money in and out constantly.

Any money you will not use for many years should be invested into something like a 401k or Roth IRA.  (You can get tons of the latest and greatest investing ideas from my investing pinterest board!)

All the money in between, money you will use in the next 6 to 18 months, you should put in a high-interest savings account.

There are so many uses for high-interest accounts!  Here’s just a few ideas to help you take advantage of high-yield accounts!

Emergency fund

An emergency fund is exactly the sort of thing you want to have in a high-yield account!  The hope is that you don’t have to use it, but it’s there and easy to access if you need it.  Why leave your money sitting in a regular savings account when it’s only earning .015% interest?  Much better to put that money somewhere where it can earn higher interest while still staying accessible.

 Read more about emergency funds 

Building short-term capitol for a long-term investment

When I am building funds for an investment, I put them in my high-interest account until I have the amount set aside I want to use.  If you want to open an investment account with a company that manages portfolios, you may need to save up a couple hundred (or thousand) dollars to meet he minimum account balance.  Put your funds in a high-interest account so they get a little more interest while they grow!

Savings account for amortized expenses

I’m a big believer in budgeting for all your expenses, including your yearly or semi-annual expenses.  I have a whole post coming soon about amortizing expenses!  Basically, making a monthly “payment” towards a yearly expense can help you plan better and saves you from paying out a huge expense in just one month.  Put that monthly payment into your high-yield account.  A high-yield account with a different institution than your checking account is with puts the money out of site, and out of mind!  When your insurance premium or amazon membership comes due, you already have the funds ready in your high-yield account.  They probably even earned a couple of bucks for you in the mean time!

Saving for trips and travel

Since travel is something that happens a little more often (but not every month), you don’t want to lock up funds in a CD or traditional investment.  But it stinks to have a big chunk of change that isn’t earning any interest!  At least in a high-yield account, your savings for travel will grow themselves just by sitting there.

What’s holding you back?

Do you need help saving money to put in a high-yield account?  Check out my saving plans board on pinterest for great ideas to help you find money in your budget to save.

If you aren’t really sure whats going on with your money, start by tracking your money.  You can start with a basic budget in excel, or use an app on your phone, but finding out where your money is going is the only way to take control of your finances!

Is it something else?  Let me know in the comments below!

Opening a high-yield savings account is a great way for you to do more with your money in a low risk setting.  What are you using your high-yield account for?

Tricks and tips for maximizing a high-yield savings account

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