75% of Americans don't have a high-yield savings account - and they're leaving free money on the table
- According to a survey by Credit Karma, just 25% of Americans have a high-yield savings account.
- Most Americans are missing out on growing their savings through earning interest, sometimes at rates as high as 2%, or 20 times more than the typical savings account.
- Many respondents said they didn't have one because they think they need to put a lot of money down. But, that's not true - some of the best accounts can be opened for $10 or less.
- Read more personal finance coverage.
New data shows the vast majority of Americans don't have a high yield savings account - and they're leaving free money on the table.
As part of the launch of its own high-yield savings account, Credit Karma surveyed 1,050 American adults about their savings habits and goals in August 2019. About 75% of people surveyed said that they don't have a high-yield savings account - a type of savings account with a much higher interest rate than a traditional savings account - and that means that their money isn't working as hard as it could be.
Even for people who have a savings account, traditional savings accounts don't earn much interest: an average of .09%, according to the FDIC in November 2019.
That's nothing compared to high-yield savings.
A high-yield savings account earns up to 20 times more money than a traditional savings account
Only 25% of Americans are taking advantage of the benefits of a high-yield savings account, which offer interest rates 20 times higher than a traditional savings account, with some as high as 2%. While experts advise investing money in the stock market to get the best return over time, high-yield savings accounts are a better option for money you want to keep close, but growing, to use within the next few years.
High-yield savings accounts are not investments. They're liquid, making them great options for relatively short-term goals like saving for a down payment on a home or a car. High-yield savings accounts are also a great way to keep growing an emergency fund that you won't be touching on a daily basis, but could need at any moment. If you're saving large chunks of money for these purposes, that money could be earning hundreds of dollars in interest over time.
The 75% of Americans who don't have one are missing out: High-yield savings accounts can grow your savings without any more effort than it takes to set up an account and initiate a transfer.
Most people think high-yield savings is more complicated than it is
According to Credit Karma's data, there's a big reason why people don't have one yet - and it's a huge misconception.
Of people who don't have a high-yield savings account, 44% said that the minimum deposit was too high. But, many high yield savings accounts actually have a very accessible minimum deposit. Two of the major players in the high-yield savings space don't require even $20 to get started. Wealthfront requires a minimum deposit of $1 to use its cash account, while Betterment requires a $10 minimum deposit. Credit Karma's own account has no minimum deposit, and requires only one cent to start earning interest.
Other reasons people chose not to open a high-yield savings account is not knowing what it is (21%), being happy with their current savings account (19%), and not wanting to switch banks (17%). And 9% said they felt that it was too good to be true, not realizing that in this case, at least, high-yield savings live up to the hype.
On the heels of a series of rate cuts by the Fed, interest rates have lowered and high-yield savings accounts are offering rates more like 1.6% to 1.9%, down from the 2% or more we saw over the summer. But as Business Insider's Tanza Loudenback reports, it's an excellent time to open a high-yield savings account for two reasons: First, 1.9% is still 19 times more interest than you'd earn in a traditional savings account, and second, interest rates fluctuate - when they go up again, you'll already have a nice chunk of cash ready and waiting to take advantage.
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