High-Yield Savings Accounts vs. Standard Savings Accounts: We Should All Love Yield

I’m embarrassed that I even have to write this particular article. I mean, come on, we should all want our money to earn as much interest as possible.

However, I understand many people have reservations about switching to a high-yield savings account, typically from an online-only bank.

But it’s time to overcome our fears and “let the yields rip.” We must take the banks up on their offer to increase our savings at extraordinary rates. Let’s begin.

Saving for a House Down Payments #5

Why do we save? Before jumping into which savings vehicles are best, we must discuss why we save in the first place. Our savings are our first lifeline against going into debt; we want to avoid debt at all costs.

Many people call their savings an emergency fund. The amount you should keep in your emergency fund varies by the source, with the typical answer being six months of expenses.

What’s the best way to save? The best way to save is to have the amount automatically withdrawn from your paycheck upon arrival.

The difficulty isn’t getting money into the account, but keeping it there. However, HYSAs help because you will love seeing your monthly interest payments.

The best way to create cash flow to save is through budgeting down to the penny. You must give every dollar a purpose, of which some must go to savings. 

Saving & Investing with a $200/Month Available

Why do most people use standard savings accounts? I have many standard savings accounts because of the convenience. I love visiting a local, regional, or national bank and depositing money with the teller.

I admit that talking to a teller face-to-face is a good feeling. No one is saying that you must forego all standard savings accounts. However, you must look at the annual yields.

Most standard savings accounts pay 0.1% interest. Perhaps, if you save over $100,000, they may pay you 1%. These numbers pale in comparison to high-yield savings.

I have at least five standard savings accounts (probably more). I use them for quick, small emergencies. I dislike keeping more than $500 in a standard savings account because of the opportunity costs.

Hooray for high-yield savings accounts (HYSAs). I opened my first high-yield savings account in June 2019 and never looked back.

Be Extreme Toward Your Dream

I now use three HYSAs: Discover (3.75%), Samsung SOFI (4%), and M1 Finance (4%). I write about all three in, “My Favorite High-Yield Savings Accounts.”

The goal of a HYSA isn’t to make you rich; it’s to help you keep up with inflation. Sure, inflation will outpace your savings, but at least you are moving the ball forward.

The amount of interest a HYSA pays compared to a standard savings account is staggering. I mean, it’s not even on the same planet.

Let’s do a couple of comparisons. Let’s assume we earn 4.0% interest on our M1 Finance HYSA and 0.1% on a standard Wells Fargo Savings Account. Let’s save $15,000 in each.

After 30 years, our $15,000 would morph into $48,651 inside the M1 Finance account. Our standard account would turn into $15,456. Wow.

Credit Card Users Beware

Our money tripled at 4%. This was a whopping $33,195 commanding victory that our HYSA put on. These numbers tell you how powerful HYSAs can be to your emergency funds.

There is really no reason to build an emergency fund in a standard savings account. Sure, it’s nice to walk into Wells Fargo and take out a large withdrawal in person.

However, there are ways to mitigate the time it takes to get funds from an online bank. Let’s review how to cover an emergency.

How to cover an emergency using an online bank. There are many ways to leverage online-only banks that offer high-savings accounts safely. Let’s say we have a $2,000 emergency we need to cover.

Quiet Quitting vs. The Great Resignation

The first way is to attach a checking account and debit card to your HYSA. I can simply go on my phone and transfer money from my HYSA to my Discover checking account and debit card. 

The second way is to use the Samsung SOFI account, which is a high-yield checking account. That’s right; the Samsung SoFi high-yield account is a checking account with its own debit card. It’s the best of both worlds and works excellent with your Samsung phone.

Use a credit card. I have over $50,000 available credit on various credit cards, with a $700 total balance. I hate credit cards, but they are very convenient. 

I use credit cards during moments of chaos, like on a vacation. I then get home, evaluate the situation, and decide which account to repay the card.

Using Credit Cards 104: Experts Using Leverage

You can solve 99% of all emergencies with a credit card. Every once in a while, you must send cash to another human. Other than that, you can use your credit card. 

You can use credit cards for most emergencies, such as fixing an air conditioner or getting new tires. You can then pay off your card from your HYSA.

You can get a credit card from the same bank or company as your HYSA to make it even more seamless. For example, I could get a credit card from Discover or SoFi.

Finally, you can transfer your money to an institution with physical banks. Transferring money sucks because it takes 2-3 days, but it’s not the end of the world.

Needless to say, you have multiple options to get your money from an online-only institution quickly. There truly isn’t a legitimate reason not to get at least one HYSA.

Vacation Dividends

Building your HYSA. In “Welcome to the Elite Savers of America,” I wrote that everyone’s goal should be to save at least $10,000 in a HYSA.

I had $9,500 in my Discover account but used most of it to purchase an RV. However, across four HYSAs, I have $10,000.

Depending on your situation, $10,000 may not sound like a lot, or it may seem impossible. However, it is a great goal.

It’s hard for me to save because I love income investing. I hate settling for 4% when I can get 12% in the markets. However, high-yield savings make it much easier to tuck my money away.

Using Credit Cards 103: Cleaning Up Debt

If you are having a tough time saving money, you’ll need to do some soul-searching. You don’t want to be in your 40s and 50s still working hard for money. Trust me; I see it clearly as a retired 44-year-old.

The first step is opening your HYSA and dropping in $50. Start there and slowly add $50 per month. Eventually, something will change inside yourself and you’ll want to double and triple down.

Conclusion. Most of us, including myself, never learned how to save. I spent all of my money when I worked at McDonald’s at 16. My paycheck and my budget were the same.

Over the years, I now understand the phrase “pay yourself first.” Pushing money into my HYSA makes saving even easier because it lessens the opportunity cost of keeping money out of the markets.

The first step to taking your financial future seriously is opening your HYSA. I have my three favorites, but there are many more. 

Find one you love and start the process. In one year, you’ll feel better about your financial situation. Good Luck!

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