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- I've been a personal-finance nerd for years now, ever since I got my first job working for a personal finance website.
- Now, it's not unusual for my friends and family to ask me for help with their money: "Where do I start?"
- I tell them the easiest way to make a big impact is to open a high-yield savings account. They're free and easy to open, they earn up to 20 times the interest of a traditional account, and they aren't invested, so there's no risk involved.
- See Business Insider's picks for the best high-yield savings accounts right now »
If you have a history of being passive about your finances, deciding that you want to take charge and make your money work for you is an exciting and empowering step.
But there are so many different account types out there (index funds, 401(k)s, IRAs, brokerage accounts) and so many ways to manage your money (financial planners, robo advisers, budgeting programs like Personal Capital, and more) that it can feel totally overwhelming.
Since I got my first job at personal finance publication LearnVest (now part of Northwestern Mutual) years ago, I've been a bit of a personal finance nerd. Though I'm far from an expert, friends and family often come to me with this question:
'Where do I start?'
It's a good question.
You could start by tracking your spending, setting up a budget, or opening an investment account for a goal you're saving for. But my first advice is to do something a bit simpler: Open a high-yield savings account.
A high-yield savings account is a regular, FDIC-insured savings account, just like the one many people have with their big banks. The difference is that, instead of earning the national average of 0.09% interest, your savings can earn 20 times that.
If you have $5,000 in a savings account at a big bank earning 0.09%, you'll earn about $5 in interest per year. If you move that money to a high-yield savings account at 2% interest, you'll end up with with $100 in interest after a year. Not too bad!
It's important to note that there are no guarantees when it comes to interest rates on high-yield savings accounts. When the Federal Reserve lowers interest rates, banks are likely to follow suit - but that doesn't mean it's not still worth opening one. Soon enough, interest rates will go back up.
Opening a high-yield savings account is a great first step for a few reasons
1. It's not scary
A lot of aspects of personal finance are intimidating. This rings especially true for things like investing - people don't love the idea that their money could disappear if the market takes a turn. A recent study by Ally Financial found that 61% of American adults think the stock market is "scary or intimidating."
A high-yield savings account, on the other hand, is a low-risk, low-stress savings vehicle. Any deposit you make into the account, plus any interest that money earns, is FDIC insured up to a certain amount (generally $250,000 per person, per bank, per type of account). The FDIC is a government agency that ensures that money in certain types of accounts stays safe, even if the bank goes under.
2. It's easy
Opening a high-yield savings account requires very little time and effort. You don't have to consult a professional, go to a brick-and-mortar institution, or even make a phone call.
Take a few minutes to research which bank is right for you - Business Insider maintains a list of which high-yield accounts offer the highest interest rates.
Then, open an account online with a deposit from your existing savings account or checking account, and you're good to go. One caveat: If you're going to keep your previous savings account open, make sure that it doesn't issue a penalty if your balance drops below a certain threshold.
3. It's free money!
High-yield savings accounts are an easy sell, because they allow people to earn more money without any extra risk or effort. Who doesn't like free money?
Everyone should have a high-yield savings account
I originally opened a high-yield savings account in 2013. It's where I kept my "don't touch" savings - the bulk of my liquid cash that I would never need unless I suffered a serious financial setback, like a long stint of unemployment. It was the perfect vehicle for this money, since it was totally separate from the bank where I kept my checking account and a savings account with a more modest money cushion.
I liked the extra interest every month so much that I eventually moved my checking and savings to an online bank with a similarly high interest rate. Since I use a customized version of this spreadsheet, developed by Business Insider's Libby Kane, I can tell you I've earned upwards of $1,500 in interest on my checking and savings accounts in the last three and a half years.
A high-yield savings account isn't a substitute for saving in a tax-advantaged retirement account - the returns aren't high enough to net you the money you'll need in your golden years. But it's a good way to keep yourself from leaving money on the table.
- More savings and retirement coverage
- How to retire early
- How to save more money
- When to save money in a CD
- When to save money in high-yield savings
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