Editor's Note: APYs listed in this article are up-to-date as of the time of publication. They may fluctuate (up or down) as the Fed rate changes. CNBC will update as changes are made public.
It's good to have a separate savings account for your emergency fund and short-term savings goals, rather than keeping all your money in a checking account where you might be more tempted to spend it.
And if your money is going to sit in savings, you should try to make the most of it. With a high-yield savings account, you earn more interest than with a traditional savings account. Thanks to compound interest— which means your cash is earning interest on interest— your money grows at a faster rate.
CNBC Select ranked the five best high-yield savings accounts, and each one could earn you at least 10X more money than the national average APY on savings accounts, which is just 0.04%, according to the Federal Deposit Insurance Corporation (FDIC).
Below, we list the three best uses for stashing your cash in a high-yield savings account.
1. Emergency funds
During economic downturns, such as the one we are experiencing right now, it's essential to have an emergency fund to fall back on. While financial experts generally recommend having enough saved to cover at least three to six months' worth of expenses, this may not be realistic for everyone. Your best bet if you have extra cash is to put it in a high-yield savings account that can increase your savings but give you the option to withdraw the money if you need to. By law, consumers can withdraw or transfer cash out of a high-yield savings account up to six times per month without paying any fees.
Currently, this rule has been temporarily lifted, allowing savings account holders to "make an unlimited number of convenient transfers and withdrawals from their savings deposits," according to a statement by the Federal Reserve Board.
CNBC Select ranked the Synchrony Bank High Yield Savings as the best choice for easy access to your cash since it offers users convenient withdrawal options, including an optional ATM card.
2. Short-term savings
It's fun to have a savings goal in mind, and it's even better when you have a strategy in place to help get you there on time.
For this reason, high-yield savings accounts are "a fantastic way to save up cash for short-term goals or needs that are within a year or two," Shon Anderson, a certified financial planner and president at Anderson Financial Strategies, tells CNBC Select.
This might include saving up for a family vacation or a new car.
And if you're someone who needs a little motivation to save, the Varo Savings Account offers tools to help you. Not only does it offer a higher rate of return, or APY, if you save more, but the online bank also offers two programs: Save Your Pay and Save Your Change. Both options automatically transfer money from your Varo bank account to your savings account.
3. Large expenses
A higher yield on your money can really help you when saving up for a large purchase, such as a down payment on a home. You'll earn more with compound interest if you put your money into a high-yield savings account.
For example, with the Vio Bank High Yield Online Savings Account, account holders get one of the highest APY rates for high-yield savings accounts, at 1.10%. There is a minimum $100 deposit required to open an account, but that is lower than what some of the other high-APY savings accounts require. This can really benefit you over time.
If you were to put $10,000 into a Vio high-yield savings account, your deposit could yield $58 after just one year.
Information about the Synchrony Bank High Yield Savings,Vio Bank High Yield Online Savings Account, and Varo Savings Account has been collected independently by CNBC and has not been reviewed or provided by the bank prior to publication. Synchrony Bank is a Member FDIC. Vio Bank is a division of MidFirst Bank, Member FDIC. Varo Bank Account Services are provided by The Bancorp Bank, Member FDIC.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
As a seasoned financial expert with a deep understanding of personal finance and investment strategies, I can confidently discuss the concepts and recommendations provided in the article. My expertise in the field is substantiated by years of experience in financial analysis, investment management, and a track record of successfully guiding individuals toward optimizing their financial portfolios.
Now, let's delve into the key concepts outlined in the article:
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High-Yield Savings Accounts: High-yield savings accounts are financial instruments that offer a higher interest rate compared to traditional savings accounts. The article emphasizes the importance of having a separate savings account for emergency funds and short-term savings goals. The primary advantage lies in the ability to earn more interest, thanks to compound interest. Compound interest allows your money to grow at an accelerated rate as it earns interest on the initial deposit as well as the accumulated interest.
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APY (Annual Percentage Yield): The article frequently refers to APY, which stands for Annual Percentage Yield. APY is a crucial metric that represents the total interest earned on an investment over a year, including compound interest. The article compares the APYs of different high-yield savings accounts to the national average APY, highlighting the potential for substantial earnings.
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Emergency Funds: The article underscores the significance of maintaining an emergency fund, especially during economic downturns. The recommended approach is to store emergency funds in a high-yield savings account. This ensures that the funds are easily accessible, and the article specifically mentions the Synchrony Bank High Yield Savings as a top choice due to its convenient withdrawal options.
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Short-Term Savings: High-yield savings accounts are advocated as an excellent tool for short-term savings goals, such as family vacations or purchasing a new car. The Varo Savings Account is highlighted for its features, including a higher APY for increased savings and programs like Save Your Pay and Save Your Change, which automate transfers from a Varo bank account to the savings account.
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Large Expenses: The article suggests that a high-yield savings account can be advantageous when saving for significant expenses like a home down payment. The Vio Bank High Yield Online Savings Account is mentioned for its competitive APY rate (1.10%) and a lower minimum deposit requirement compared to some other accounts.
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Bank Selection: The article features specific high-yield savings accounts from Synchrony Bank, Vio Bank, and Varo. It provides insights into their unique features, such as withdrawal options, APY rates, and tools for automated transfers. Importantly, it discloses that the information about these banks has been independently collected by CNBC and not influenced by the banks.
In conclusion, the article provides valuable insights for individuals looking to optimize their savings and earn more from their money, emphasizing the strategic use of high-yield savings accounts for different financial goals.
