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A high-yield savings account isn’t a typical savings account you would open when you walk into a bank asking for a place to stash your cash.
A typical savings account offers minimal interest returns, while a high-yield savings account rewards you with monthly interest for simply letting your money grow. With minimal risk, no pesky fees (as outlined below), and a quick setup process, this account is a hassle-free way to make your money work for you.
At the current time, banks are offering interest rates of over 4%, which continue to rise. To simplify the calculations, if you deposit $10,000 into a high-yield savings account, you would earn $400 in interest at a rate of 4%. Over the span of 12 months, this equates to approximately $33 per month. Some banks even provide daily compounding interest, allowing your money to grow effortlessly. While it may not seem like a significant amount, this passive income is a crucial seed for nurturing a money tree that can lead to financial independence and freedom.
Note* The Annual Percentage Yield (APY) is the total amount of interest you will earn on your savings account over the course of a year, including compounding interest. The Interest Rate is the amount of interest you will earn on your savings account over the course of a year, without compounding interest.
The key difference between those who have financial stability and those who do not often boils down to the ability to generate investment capital. Witnessing your money grow effortlessly on a monthly basis could serve as the catalyst to fuel your motivation to consistently contribute to your savings rather than withdrawing from it.
If you’re starting from ground zero, I believe a high-yield savings account is the first necessary building block for many on the road towards financial freedom. Anyone can open one, there are virtually no risks, and your money is 100% liquid meaning you can access it whenever you’d like. This may be absolutely necessary if you intend on buying investment property, and need to take cash out when you see an amazing deal you can’t pass up. Plant this seed today!
Discover and Betterment are two high yield accounts I use to store cash. Discover offers more of a traditional bank account with a nice mobile app to manage transfers. It has been the most hassle free online bank account as far as linking other banks and transferring money, as well. Betterment’s cash reserve will not have its own account and routing number like Discover’s, but it is currently offering a higher APY (4.75% of this writing).