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 is the best high-yield savings account? ›
Best high-yield savings accounts
- Best for earning a high APY: Western Alliance Bank High-Yield Savings Account.
- Best for account features: LendingClub® High-Yield Savings.
- Best for no minimum deposit: Newtek Bank Personal High Yield Savings.
- Best for ATM card: UFB Secure Savings.
High-yield savings accounts reward you with a higher interest rate than traditional savings accounts, making your money grow faster as it sits in your account. The interest rate that these accounts offer is noted as APY, or annual percentage yield. The higher your APY, the faster your money grows.
What are the three most common savings accounts? ›
Types of savings accounts
- Regular savings account: earns interest and offers quick access to funds.
- Money market account: earns interest and may provide check-writing privileges and ATM access.
- Certificate of deposit, or CD: usually has the highest interest rate among savings accounts, but no access to funds.
Opening a high-yield savings account could allow you to earn more interest from your savings. If you stash $10,000 in a high-yield savings account for one year at 4.50% APY, you can earn $450. The longer the money sits in your account, the more interest you'll earn.
Can I take my money out of a high-yield savings account? ›
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.
Can you ever lose your money with high-yield savings account? ›
Safety: As noted, most high-yield savings accounts are either FDIC or NCUA insured for up to $250,000. Moreover, as deposit accounts, they're not susceptible to the ebbs and flows of the market, so there's little to no chance you'll lose the money you deposit into one.
What happens if you put 50000 in a high-yield savings account? ›
How much of a difference does this make? If you deposit $50,000 into a traditional savings account with a 0.46%, you'll earn just $230 in total interest after one year. But if you deposit that amount into a high-yield savings account with a 5.32% APY,* your one-year interest soars to over $2,660.
What is the downside of 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.
Is there a catch to a high-yield savings account? ›
High-yield savings account FAQs
However, your savings can lose purchasing power over time because of inflation. For example, if your high-yield savings account pays 2 percent and the annual inflation rate is 6 percent, your money has lost 4 percent of its purchasing power.
Millionaires Like High-Yield Savings, but Not as Much as Other Accounts. Usually offering significantly more interest than a traditional savings account, high-yield savings accounts have blown up in popularity among everyone, including millionaires.
How long should you keep money in a high-yield savings account? ›
There's no rule on the exact amount to have in your high-yield savings account. The amount of money you should store in these accounts depends on various factors. However, the general rule of thumb is that you should have liquid access to enough cash to cover between three and six months of your expenses.
What is the biggest disadvantage to savings accounts? ›
CONS:
- Low return – although consumers can earn interest, they offer relatively lower rates.
- Taxes – there are no tax benefits for putting money into a savings account. ...
- Minimum balance – most accounts have a minimum balance which, if the account falls below, causes the account holder to incur charges.
Grow your balance with a locked or fixed-term savings account to reduce the temptation of spending it all. Two types of accounts prevent you from accessing your money: savings accounts and CDs. A savings account doesn't lock your money, but it restricts how often you withdraw each month.
What account fees should you avoid with savings accounts? ›
Here are seven bank charges and fees to avoid, plus how to avoid them:
- Monthly maintenance fee.
- Out-of-network ATM fee.
- Overdraft fee.
- Nonsufficient funds fee.
- Stop payment fee.
- Check fees.
- Inactivity fee.
The cons of high-yield savings accounts
Interest rates on high-yield savings accounts are variable and can fluctuate at any time, so while a bank may advertise a high annual percentage yield (APY) when you apply, it likely won't last forever.
How much will 50000 make in a high-yield savings account? ›
4.25% APY: If you invest your $50,000 in a CD or high-yield savings account with a 4.25% interest rate, you will earn $2,125 in interest in one year. 4.5% APY: A 4.5% CD or high-yield savings account will yield $2,250 in interest on your $50,000 investment in one year.
What is the catch to a high-yield savings account? ›
What are the cons of a high-yield savings account? Variable rates. Interest rates on these accounts can and do fluctuate, which means the APY you started with could potentially drop. Keep your eye on such changes and remember that the money is yours; at any time, you can move it to a bank that offers a higher rate.
Can you live off of a high-yield savings account? ›
It's possible, but it isn't realistic for everyone. Living off of interest relies on having a large enough balance invested that your regular interest earnings meet your salary needs. Rest assured that you don't need to earn a million dollar paycheck to reach your goal.
