How to use a high-yield savings account to grow your money faster

What if you could earn more money from a savings account without doing too much more than you already do? It sounds almost too good to be true, right? Allow us to introduce you to the high-yield savings account (HYSA).

As the name implies, a HYSA offers an opportunity to earn a higher yield, meaning more money, on your balance than a traditional savings account.

The better earning potential makes HYSAs an excellent option for storing emergency funds, saving for short-term goals or large purchases, or simply allowing you to earn more on your savings.

There are plenty of HYSAs to choose from, but not all are created equal. Before you make any decisions, we'll look at what to know about high-yield savings accounts and answer some frequently asked questions like, "How do high-yield savings accounts work?" and "Can you withdraw from a high-yield savings account?"

Before we dive deeper into the world of high-yield savings accounts, let's establish the basics, like what a high-yield savings account is. A high-yield savings account is a type of savings account that offers higher interest rates compared to a traditional savings account.

Online banks or credit unions typically offer these accounts, which allows them to offer higher rates due to lower overhead costs. The primary advantage of a high-yield savings account is the ability to earn significantly more on your deposits.

How does a HYSA work, exactly? A high-yield savings account works similarly to a traditional savings account but with the added benefit of earning a higher interest rate. Here's how it typically works:

• Deposit your funds: The first step is to open a high-yield savings account, you'll deposit your money just like in a regular account.
• Earn interest: Your HYSA will generally offer a higher annual percentage yield (APY) than a regular savings account, so your money will be able to grow faster over time.
• Access your funds: While there may be withdrawal limits (some institutions may impose a limit, however no HYSAs offered through Raisin have withdrawal limits), you can generally access your money whenever you need it without penalties.

High-yield and traditional savings accounts are more similar than they are different — they're both liquid, have no or low fees, and provide various deposit and withdrawal options.

If you’re looking to earn high interest for a savings account, a high-yield savings account may be right for you.

The main benefit of a HYSA is that it will generally offer higher interest rates. According to the Federal Deposit Insurance Corporation (FDIC), the average interest rate for a regular savings account is just 0.46% (as of October 2024). Many high-yield savings accounts, like those available through Raisin's partner banks and credit unions, offer rates many times what traditional accounts are paying.

How much of a difference does this make? If you deposit $50,000 into a traditional savings account with a 0.46%, you'll earn just $230 in total interest after one year.

But if you deposit that amount into a high-yield savings account offering, say, 4.60% APY,* your one-year interest soars to over $2,301.25.

This is a great question and, ultimately, one that only you can answer, depending on your financial goals. However, there are some common strategies savers use to maximize their HYSA benefits:

• Emergency fund: Building an emergency fund in a high-yield savings account is a smart move because the funds will remain easily accessible while earning a high interest rate. You should aim to save three to six months’ worth of living expenses in this account.
• Saving for short-term goals or large purchases: Whether planning for your dream European vacation, saving up for your dream home, or another short-term financial goal, a high-yield savings account can help your savings grow faster while keeping your money safe.
• Hold excess checking account funds: Keeping excess cash in a checking account means missing out on potential interest earnings. You can earn interest without sacrificing liquidity by transferring excess funds into a high-yield savings account.
• Supplementing your retirement savings: While a high-yield savings account probably shouldn't replace long-term investments like IRAs or 401(k)s, it can serve as a supplemental savings vehicle for retirement, especially for funds you may need to access in the near future.

Before deciding to open a high-yield savings account, it's important to weigh the pros and cons.

• High interest: The most significant advantage is the ability to earn high interest on a savings account. Many high-yield savings accounts offer APYs that are several times higher than traditional savings accounts.
• Liquidity: Unlike certificates of deposit (CDs) or other investment accounts, high-yield savings accounts generally allow you to withdraw your money without penalties, providing flexibility when needed.
• Low risk: Since most high-yield savings accounts are protected by federal deposit insurance (up to $250,000 per depositor, per institution), your money is safe even in the event of bank or credit union failure.
• No or low fees: Many high-yield savings accounts, like those on the Raisin platform, come with no monthly maintenance fees, allowing you to grow your savings without incurring unnecessary costs.

• Withdrawal limits: High-yield savings accounts may limit the number of withdrawals you can make each month (none offered on the Raisin platform have such limitations).
• Variable interest rates: The interest rate on a high-yield savings account can fluctuate based on market conditions, meaning that the APY you earn today might not be the same in the future.
• Online-only banks: Many high-yield savings accounts are offered by online-only banks, which means you may not have access to physical branches if you prefer in-person banking.