Should I open a high-yield savings account when interest rates are down?

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By Daniel Bortz
Daniel Bortz

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Daniel Bortz

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Daniel Bortz is a contributor to Fox Money.

Updated October 16, 2024, 2:47 AM EDT

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Despite the coronavirus pandemic’s destructive effects on the U.S. economy, millions of Americans have recently added money to their savings — and now they're looking for more ways to boost their savings account in case of any emergencies.

According to a survey from MassMutual, more than 1 in 5 Americans (22%) saved at least $1,000 this past summer, with 10% reporting they squirreled away more than $5,000. The top reason people said they were able to save money was that they were no longer traveling.

If you're in a comfortable spot financially and you're hoping to make more interest on your savings, then you may want to consider opening a high-yield savings account. But before you start the process, you need to understand how interest rates play a role.

What is a high-yield savings account?

A high-yield savings account is a type of savings account that typically has a substantially higher interest rate than a standard savings account, with some high-yield accounts offering rates of up to 20-25 times the national average, which the FDIC currently puts at 0.05%.

Essentially, if you're looking to make more interest on your hard-earned cash, then you may want to consider a high-yield savings account. Maximize your earnings with these high-yield savings options.

HOW ARE HIGH-YIELD SAVINGS ACCOUNTS DIFFERENT THAN TRADITIONAL ONES?

Should I open a high-yield savings account when rates drop?

The Federal Reserve slashed its benchmark federal fund rate to 0% in March. Because yields on savings accounts tend to follow the Fed’s actions, many financial institutions have reduced their interest rates on high-yield savings accounts. Translation: now may be a good time to shop around for a savings account with a higher APY.

Today's high-yield savings account interest rates:

Most interest rates for high-yield accounts are between 0.55% and 1.21% APY.

You'll also want to take time to read online reviews from customers and check out bank ratings on the Better Business Bureau (BBB) — high-quality customer service is no small thing.

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What are the annual percentage yield (APY) rates?

Short for annual percentage yield, APY is the rate of return you earn in a bank account with compounding interest. To better understand this, let’s look at an example — one that illustrates the difference between a high-yield savings account and a traditional savings account.

Let’s say you deposit $10,000 into a high-yield savings account with a 2% interest rate. If you don’t make additional contributions or withdraw funds, your annual return would be about $200. Had you deposited the money into a traditional savings account with an APY of 0.05%, you would have earned only $5 in interest after one year.

No matter how much money you have to deposit — don’t leave money on the table! These high-yield savings options can give you more bang for your buck.

WHAT APR MEANS ON YOUR CREDIT CARDS AND LOANS

How do I apply for a high-yield savings account?

One thing to keep in mind when weighing options, though, is an account’s terms and conditions.

More specifically, see if an account has any maintenance fees, minimum deposits, or monthly balance requirements (some savings accounts boast a higher APY, but they also have higher account fees).

HERE'S HOW YOU CAN GET AN EMERGENCY LOAN FAST

Other strategies to maximize savings

Building your money in a high-yield savings account isn’t the only way you can save for your future. Here are a few other steps you can take:

  • Open a certificate of deposit. Traditionally CD rates are higher than savings account rates, but one thing to bear in mind: like savings account rates, CDs rates have fallen during the pandemic.
  • Stash your money in multiple accounts. If you have several savings goals, storing your money in more than one savings account can make it easier for you to track your progress toward each goal.
  • Set—and stick—to a budget. This one may seem like a no-brainer, but according to a recent Debt.com survey, 20% of Americans don’t use a budget.
Meet the contributor:
Daniel Bortz
Daniel Bortz

Daniel Bortz is a contributor to Fox Money.

Fox Money

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Fox Money is a property of Credible Operations, Inc., which is majority-owned indirectly by Fox Corporation. This material may not be published, broadcast, rewritten, or redistributed. All rights reserved. Use of this website (including any and all parts and components) constitutes your acceptance of Fox's Terms of Use and Updated Privacy Policy | Your Privacy Choices.