Is Your Money Working for You? Unlocking Savings Potential

Is Your Money Working for You: People in the United States miss out on hundreds or even thousands of dollars a year because they don’t use their high-yield savings accounts.

Santander US has done a new study that shows that 64% of Americans with middle-class incomes who have savings accounts make less than 3% in interest. At the moment, about 15% of people with accounts earn less than 1%.

Mortgages, car loans, and credit card debt have all become very expensive because of high interest rates. However, high-yield savings accounts and certificates of deposit can help.

At the moment, some banks offer savings accounts and CDs with little to no risk that earn between 5% and 6% per year.

The personal financial coach and CNET expert review board member Bernadette Joy told people, “If you have extra cash, take advantage of the high interest rates. It’s simple passive income.” “Right now, this is the best way to grow your savings with almost no risk if you don’t have any consumer debt.”

Is Your Money Working for You: Why you should get a high-yield savings account

This study from Santander found that Americans making between $47,000 and $142,000 a year are hesitant to switch to a high-yield savings account.

A lot of people think they don’t have enough cash to make the switch worthwhile. Some people like to keep their money in a savings account that is easy to get to.

Lori Gravitt, assistant vice president and branch manager at Addition Financial Credit Union, said, “When you earn 4% on $1,000 in a savings account, that’s more than you were making in a checking account that doesn’t pay any interest.” If someone hears the word “high-yield,” they think that means you need a lot of cash flow. But that’s not true.

Since the Federal Reserve has kept rates at 22-year highs this week, the high interest rates that are currently available on savings accounts and CDs from banks are likely to stay that way for a while.

You’re throwing away free money if you don’t use high savings rates.

If you put $5,000 into a savings account at a big bank like Chase or Bank of America that earns 0.01% APY for a year, you’ll only get $0.50 back in interest, as long as your APY stays the same and you don’t make any other transfers. You could make hundreds more with a higher-yield savings account or CD, though.

Deposit $5,000	APY	Total after 12 months*
in a low-yield savings account	0.01%	$0.50
in a high-yield savings account	4.3%	$215
in a CD	5.5%	$275

There are high-yield savings accounts from Capital One, American Express, and Barclays. The rates range from 4.3% to 4.35%. CD rates for one year are around 5.5% at BMO Alto and Lending Club.

One problem is that people still don’t know enough about high-yield accounts

Gravitt said that a big reason why people are hesitant to open a new high-yield savings account is that they don’t understand how they work. She often has to talk to younger customers about the benefits of a high-yield savings account or a CD and how to avoid the dreaded fees and fines.

Then, Gravitt said, “I find that some of them think rates will keep going up and they’ll miss out on a better chance.” “But the truth is that they’re just missing chances right now.”

CDs have a fixed rate for a certain amount of time and are generally better than savings accounts. Of course, there are fees if you want to get the money out before the time is over. High-yield savings accounts give you more freedom, but the interest you earn can change whenever the bank wants. Your money is safe with high-yield savings accounts and CDs at FDIC-insured banks or NCUA-insured credit unions. Up to $250,000 per person and account level is protected.

Open a savings account with less than $1,000

Most Americans don’t use high-yield savings accounts in 2023 for a number of reasons.

Aside from the reasons given in Santander’s study, experts told CNET that workers are also doubtful because they have to start paying back their student loans and the economy is unsure because of high inflation. They may also be worried about bank fees and live from one paycheck to the next.

Joy says that as a test to see how often you need to access your money, open a high-yield savings account and put in $1,000 or even less.

She added, “If you have to reach for it a lot, then it might not make sense to put it there.” “But if you can leave it alone for a month, you can try adding more.”

It can be a pain to switch banks, but starting a new account online only takes minutes. You can even set up a partial direct payment to put some of your paycheck into an account that earns more.

If you are worried about how easy it is to get to your money, savings accounts can give you the same access as bank accounts. Some savings accounts come with a debit or ATM card, so you can get to your money in more ways than just bank offices and apps. You can also save a few dollars with high interest rates in case of a disaster.