Should you put your stimulus check in a high-yield savings account?

COVID-19 disrupted the economy and shattered people’s lives. Millions lost their jobs or saw gaps in employment. Today, untold numbers of consumers still can’t meet their most basic personal finance needs. For them, and maybe even you, federal stimulus checks are much-needed relief that couldn’t have come too soon.

The American Rescue Plan, enacted in March 2021, will distribute $1,400 stimulus checks to individuals and $2,800 to married couples, plus an additional $1,400 stimulus payment for each eligible child. Income will determine eligibility, and not everyone has received (or will receive) a check.

This third stimulus check, like the previous two, is meant to stimulate the U.S. economy by consumers spending their direct cash payment, potentially on nonessential items.

But, a better and much more practical way to use your stimulus money is to start or add to your emergency fund by depositing the funds into a high-yield savings account instead of a checking account.

The national average savings account earns just 0.04% APY, according to the FDIC. Check out high-yield savings options via the Credible marketplace to save extra cash.

HOW OPENING A HIGH-YIELD SAVINGS ACCOUNT CAN HELP YOU PREPARE FOR BIG FINANCIAL SURPRISES IN 2021

Who should consider a high-yield savings account for their stimulus check

Is investing in a high-yield savings account right for you? If you find yourself on shaky ground financially - like digging into your emergency savings or money you've saved for retirement, the $1,400 check can help pay for groceries, rent, gas, utilities, and pay off debt like a personal loan or student loans. Of course, how the latest payment is used is up to you, but it may be beneficial to speak with a financial advisor.

However, you can only make a certain number of withdrawals before you’re hit with a fee, limiting your ATM accessibility. And, because interest rates are variable, the interest you earn today may not be the same as what you make tomorrow.

5 WAYS A HIGH-YIELD SAVINGS ACCOUNT WILL BOOST YOUR OVERALL SAVINGS

Benefits of a high-yield savings account

High-yield accounts not only offer you a stable place to store your stimulus check, but thanks to higher interest rates, your money grows much faster than with a traditional account.

Other benefits of a high-yield savings account include:

1. They can help you build an emergency fund much faster than traditional savings accounts.
2. They compound interest, which means you earn interest on the interest already earned, as well as on the principle.
3. Interest rates currently hover around 1%, which outpaces the 0.06% rate on regular savings accounts.
4. Your money is safe because high-yield accounts are FDIC-insured up to $250,000.
5. You'll be able to retrieve your cash whenever you need.
6. Most high-yield savings accounts have no maintenance fees attached, such as fees for minimum deposits or keeping an account minimum balance.
7. If you choose an online savings account, you can likely access your account from most mobile devices with online banking.
8. You can transfer your money from your high-yield savings account to another bank account.

5 MYTHS ABOUT HIGH-YIELD SAVINGS ACCOUNTS

Other investment options to consider

The $1,400 stimulus check is a pretty generous cash reward. And while a high-yield savings account can grow exponentially, there are other investment options to also consider. But remember, not all investments earn money, and you could lose your $1,400, so choose where you invest your stimulus check money wisely.

• Add to your IRA or 401K. If you have an IRA or a 401K account, depositing your $1,400 check is an investment in your future. Some IRAs pay as much as 1.25% right now, but most range between 0.8% and 1%.
• Check out stocks and ETFs. Exchange-traded funds or ETFs allow you to invest in a variety of stocks with a single investment. Assuming you keep your money in the ETF for 10 years and earn a 7% annual return on your money, it’s possible to double your $1,400 investment.
• Invest in dividend stocks. Dividend-earning stocks pay you to own them by way of a dividend you receive every quarter or every year. That dividend may only be a few dollars per share, but the more shares you own, the higher your dividends.
• Put money toward your education. Maybe you’ve held off going back to school, but with the added money from the stimulus, it may be time to jump in. Granted, you won’t earn any dividends or interest on the $1,400, but you will be investing in your future, and that is priceless.

If you don’t already have a high-yield savings account, now is an excellent time to open and start investing in one. Your federal stimulus money could be well-served in one, and it can help if you need to make a mortgage payment, help in paying off credit cards, an auto loan or real estate loan.

WHY IT’S A GOOD IDEA TO PUT SOME MONEY IN A HIGH-YIELD SAVINGS ACCOUNT

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