High-yield savings accounts have been great when it comes to saving safely and still earn a little money. But now that the Federal Reserve has lowered interest rates in late 2024 and early 2025 things might change.
The truth is they can still be a smart choice, if you use them the right way. Experts say that even with the rate cuts, many high-yield savings accounts are still offering much better interest than regular savings accounts. While a normal savings account might only give you 0.42% interest per year, many high-yield ones are offering close to or even more than 4%, depending on the bank.
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Why Interest Rates still Matter?
Financial expert Ryan McLin explained that most regular savings accounts don’t help your money grow much. “High-yield savings accounts do what most savings accounts don’t: actually earn something,” he said. McLin added that these accounts are great for keeping emergency funds or cash you might need soon, because you earn more interest without taking big risks.
To understand the difference better, imagine you put $10,000 in a regular savings account. In five years, you might earn only about $211. But if you use a high-yield account with 4% interest, you could earn over $2,200 in the same amount of time. That’s a big difference for doing nothing more than picking the right type of account.
No Long-term Growth
Interest rates on these accounts can change anytime, since they follow what the Federal Reserve does. Even though the Fed started cutting rates, online banks are still offering higher interest right now because they want more people to deposit money. As Michael Rodriquez said, “Online banks are still competing for deposits, which is keeping rates elevated for now.” He also pointed out that this is one of the few bright spots in today’s mixed-up economy.
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Still, it’s important to know that these accounts aren’t meant for long-term goals. They won’t help you grow wealth like the stock market can. “This account isn’t for growing wealth but making sure accessible cash doesn’t lose purchasing power over time,” McLin said. That means it’s good for holding money you might need soon, but not great for saving for retirement or long-term investments.
Compared to the S&P 500, which has given around 10% average returns over time, even the best savings accounts don’t go past 5%. So for big goals, like building wealth or saving for retirement, you’ll still want to put your money into things like index funds, stocks, or bonds. A high-yield savings account is still useful it gives your extra cash a safe place to sit and earn, instead of losing value over time.
