Why it's a good idea to put some money in a high-yield savings account

As of Dec. 22, 2020, there were more than 75.5 million cases of COVID-19 around the world. The coronavirus pandemic has upended the economy, disrupted the global supply of goods and driven up unemployment rates. It’s little wonder Americans are concerned about the future of their finances.

For the past 50 years, personal savings in the U.S. averaged just 9% of disposable income. In April 2020, that number reached an all-time high of 33.70%, according to Trading Economics. At a time when the economy is still struggling and not expected to return to pre-pandemic level until 2022, vaccine distribution is ongoing, and a new administration is entering the White House, putting some money into a high-yield savings account makes sense.

Should I put my money in a high-yield savings account?

There are many reasons to put your money into a high-yield savings account, particularly if you have a lot of cash sitting in your account right now not earning any interest. If you're not consistently dipping into your savings and you want to make some extra money, then a high-yield savings account may be right for you.

Still not convinced? Here are six reasons why it's a good idea to put money in a high-yield savings account.

1. Higher interest rate compared to traditional savings accounts
2. Your money is safe and secure
3. Easily access your money
4. Compounding interest
5. No additional fees
6. Interest rates will likely increase to previous levels

1. Higher interest rate compared to traditional savings accounts

The national average savings account earns just 0.09% APY, according to the FDIC. In comparison, the average interest rate on a high-yield savings account is 0.6%. Despite the low-interest rates, high-yield savings accounts are still a safe bet.

At the beginning of the pandemic, the Federal Reserve dropped interest rates to near 0% as a way to support the economy. In accordance, banks and credit unions lowered interest rates on their financial products, including high-yield savings accounts, to half of what they were one year ago.

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2. Your money is safe and secure

Some people avoid high-yield savings accounts because they're not sure how they work or think they aren't safe. But unlike some investments, when you put your money into a high-yield savings account, you can rest assured it’s safe and secured by the government with FDIC insurance up to $250,000.

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3. Easily access your money

Any money that you deposit in a high-yield savings account is easily accessible. You can withdraw or transfer your funds as often as six times per month — the maximum number of withdrawals the FDIC allows — without penalty.

Many banks and credit unions allow you to withdraw your funds via an ATM, call or visit your local branch office, or you can transfer funds electronically by linking to another bank account. Keep in mind that there may be a delay of between 24 and 48 hours to receive your money.

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4. Compounding interest

High-yield savings accounts compound interest, either daily, monthly or quarterly. That means you’re earning interest on both your principal amount and on the interest you’ve already earned. This can greatly accelerate the growth of your savings over time, adding nicely to your rainy day fund.

Let’s say you deposit $1,000 into your savings account with 1% interest compounded daily. At the end of year one, you will have $1,010.05 in your account. At the end of two years, you’ll have $1,020.20. At the end of 10 years, you’ll have a nice emergency fund of $1,105.17 -- and that’s if you make no additional deposits into your accounts.

But, if you were to add $100 per month into your account, after 10 years, you would have saved a total of $13,730.62 and earned $730.62 in interest.

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5. No additional fees

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6. Interest rates will likely increase to previous levels