I’ve spoken about High Yield Savings Accounts (HYSA) in my passive income ideas post.. In my opinion, these are the best savings accounts to have! Most traditional savings accounts will give you an Annual percentage yield (interest rate) of 0.42% or less even. It fluctuates. HYSA are safe and better than a savings account at a traditional bank because the APY can be from 0.42% up to 7% or more and it fluctuates within the year. You can make money without spending money. How? Compound Interest!
Let me explain compound interest simply with an example:
With $100 at an annual percentage yield rate of 10% per year, your total at the end of the year will be $110. You earned $10 doing nothing! The more money you have to invest (Your new $110), the higher that amount will be in the future (End of Year 2: $110 x 10% = $11; $11+ $110 = $121). That is compounding. You must ALWAYS pay taxes on the interest earned (the $21) but it’s better than not earning anything at all and you can start today!
“The most powerful invention of man is compound interest.” – Albert Einstein
If you want to play around with compound interest calculations you can search Google “compound interest calculator” or visit this website HERE.
Below, I will give you the pros and cons of these types of accounts and I will give you some HYSA options available to you.
Pros:
You don’t have to ever worry about losing money. You’re ALWAYS making money even if you leave your money in the account and forget about it! You also have easy access to your money at any time without penalties (unlike a bond, IRA or 401k that give penalties for accessing your money).
Cons:
It’s not always a high APY rate and it fluctuates with the market. I have seen my HYSA interest rate increase and decrease over the years from 0.5% to 4.0% and back down to 0.5%. It’s just the way it is.
*Remember to always pay taxes on your interest earnings. You will receive a statement at the end of the year and you don’t want to get in trouble with the local authorities. Consult an accountant for professional advice on taxes.
Use sites like this to compare High Yield Savings Account banking options:
My personal favorite HYSA is Ally Bank. Ally’s annual percentage yield compounds monthly (i.e. You will earn interest on the money in your account every month at the current rate; It’s 4.35% APY as of February 1, 2024). It’s free to open an account, no monthly fees, no minimums to qualify (as of now).
Here are some other options you may want to consider to find the best option for you:
Capital One 360 (very similar to Ally Bank and I´d also recommend)
📢Need financial advice? Contact me for a 1-on-1 financial coaching session!