Getting Started with High-Yield Savings Accounts: Overcoming Your Banking Fears

To investors, a high-yield savings account (HYSA) is the minimum location where they will store their money. However, the average person needs to be made aware of HYSAs.

My goal today is to get middle-class citizens the knowledge and confidence to transfer their first $100 into an HYSA. HYSAs are your first step into collecting and capturing the magic of compound interest.

What is a High-Yield Savings Account? An HYSA is a savings account in a bank that pays you much higher interest than a standard savings account.

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Let’s compare an HYSA to a standard savings account. Today (May 2, 2023), my Wells Fargo savings account pays 0.15% in interest.

In comparison, my favorite HYSA (Discover) pays 3.75%—25 times more interest. This is a massive difference when you are saving for an emergency fund or house down payments.

How can HYSAs pay more? As investors, we constantly search for the “why” to make solid investing decisions. Most people don’t understand how HYSAs can afford to pay so much interest.

Because of this fear or mistrust, they decide to stick with a low-paying account in a bank that they can trust. So let’s figure out how HYSAs can offer such great rates.

Happy Cash Flow Retirement 9

HYSAs can pay so much interest mainly because they are usually online-only banks. Online-only banks have very few if any, physical stores.

No physical stores mean much less overhead costs such as rent, taxes, and insurance. They can pass these cost savings to high-interest investors.

Is my money safe in an online-only bank? I went with Discover for my HYSA because I trust the name. Other HYSAs with solid pedigrees like ALLY, Apple, and Marcus (Goldman Sachs) exist.

The Federal Deposit Insurance Corporation (FDIC) also protects $250,000 in deposits. You can open an additional account at another bank if you have more than this amount.

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Now we know how HYSAs can offer such great rates, some terrific banks, and that the FDIC protects large deposits. Let’s transfer our money into our HYSA.

My HYSA story. I began reading about compound interest, passive income, and retirement planning in June 2019.

I opened my Discover HYSA in June 2019 by transferring $100 into the account. At the end of the month, I earned a whopping $0.06 in interest. 

But that payment was the first passive income I intentionally earned. Last month, I made $22.21 in interest from my HYSA and $13.46 from my cashback debit card (more on that later).

Getting started. I recommend starting with HYSAs like I did—by transferring $100. This allows you time to build trust in your account.

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I love my Discover HYSA because I can add a 1% cashback debit card. The connection is that the rewards go straight into my HYSA at the end of the month.

Using your debit card. I put as many little bills on my cashback debit card as possible. These include Netflix, Hulu, YouTube, and Google Drive.

I also use my debit card for my daily food and entertainment allowance. The more I use my debit card, the more rewards go to my HYSAs.

HYSAs versus certificates of deposit. The closest thing to an HYSA, outside of money market accounts for investors, is a certificate of deposit.

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The rates on certificates of deposit are higher than HYSAs, but you will need to lock up your money for a defined period.

You can use CD ladders to keep money available over time constantly. However, HYSAs ensure you can always access your money within 1-2 minutes.

Combining savings products. The best way to save is to use a combination of savings vehicles—ensuring you cover all your bases for any situation.

1. Standard savings accounts. I usually keep $4,000-$5,000 across 3-4 traditional savings accounts. These accounts serve as my first line of defense against emergencies and daily random events.
2. High-Yield Savings Accounts. I like to protect my HYSA at all costs. The goal is to get it up to $25,000 to $30,000. However, if I must use it, I will. It’s there for emergencies.
3. Certificates of deposit. I do not use certificates of deposit.
4. Savings bonds. I use both “I” and “EE” bonds as a way to save for the long term (30 years).
5. Treasury Bonds. I buy and hold 30-Year Treasury Bonds. These produce income semi-annually.

Don’t forget your taxes. Yes, you will need to pay taxes on the interest from your HYSA if you earn more than $10 per year.

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Setting aside your taxes so you don’t have a massive tax burden at the end of the year is always a good idea.

The start of something great. HYSAs are the start of a bigger world of compound interest. Once you see your money growing, you will become intrigued.

The average person only understands how to work for money. They must exchange an hour for every dollar that enters their home. 

You simply cannot beat inflation in the long term by working more hours. To stay ahead financially, you must make money while you sleep.

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I made $22 in interest on my HYSA last month. For many people, that is one complete hour of work. So, the bank eliminated one hour of work from my workload.

Conclusion. Changing our mindsets and money habits is tough. The average person cracks under the weight of shifting to a new perspective.

Using a high-yield saving account is the first step to understanding the power of passive income and compound interest.

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You can start with a small amount if you don’t trust online banks. Watch how you start receiving interest payments, and you will become hooked.

The calculation for monthly interest is the amount (say $1,000) times the interest rate (0.0375). Then you divide by 12 for the number of months.

So $1,000 invested at 3.75% nets me $37.50 per year and $3.12 monthly. Learn how to calculate your interest payments quickly—now you’re talking the “language of money.” Good Luck!

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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it.  I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing