Is the interest rate on your high-yield savings account dropping? Do not panic !
In response to the COVID-19 pandemic, the Federal Reserve has lowered interest rates to new record lows. Currently, interest rates on standard savings accounts are only 0.05%. While this is good news for homeowners looking to refinance their mortgage, it’s another story for anyone considering putting some of their hard-earned money into a savings account.
High-yield savings accounts fare a little better, with interest rates between 0.65% and 1%. But if you’re wondering if high-yield savings accounts are worth it, you’re not alone.
Visit Credible today to explore their high yield savings account options and compare APY rates.
What are High Yield Savings Accounts?
With a high-yield savings account, your money earns a higher interest rate, or annual percentage yield (APY), than a standard savings account. Rates vary from bank to bank, but generally by a tenth or less of a percentage point. Unlike traditional savings accounts, not all banks or credit unions offer high yield accounts. Online banks seem to offer the best rates.
Find out all the ways you can maximize your income with these high-yield savings options on Credible Market.
High-yield savings accounts are interest-based, which means you earn interest on the interest you’ve already earned. These accounts also allow you to earn more money from your cash savings. For example, you put $2,000 in a high yield savings account with an APY of 1.2%. After a year, if you don’t touch the money in your account, you will earn about $24.00. If you put your money in a standard savings account earning around 0.20%, you will only earn around $4.00.
Neither amount is worth shouting about, but $24.00 is way better than $4.00.
HERE’S HOW MUCH A HIGH YIELD SAVINGS ACCOUNT PAYS
How Federal Reserve Rate Cuts Affect Savings Accounts
As the coronavirus has become a pandemic, the Federal Reserve has cut its benchmark interest rate to between 0.0% and 0.25%. This was done to revive the economy and encourage borrowers to start spending. The central bank also bought billions of dollars of bonds, pushing rates even lower. Not good news for savings accounts. But even before COVID, interest-bearing savings accounts weren’t so great.
Even so, your money is FDIC-insured, and over time, a high-yield savings account won’t lose much value. For example, if inflation is 1.00% and your account pays 0.02%, you will lose 0.98% due to inflation. However, currently a high yield savings account can pay up to 0.80% APY, so you will only lose 0.20% to inflation.
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HOW ARE HIGH YIELD SAVINGS ACCOUNTS DIFFERENT FROM TRADITIONAL?
What to do if rates continue to fall
The short answer? Do not do anything. Even with historically low interest rates, don’t withdraw your money from your High Yield Savings Account just yet. It’s still one of the best places to keep your money, mainly because rates on high-yield accounts – even when they drop – are still better than traditional savings accounts.
For example, if you put $10,000 in a high yield savings account, you could earn up to 0.80% APY on your money, which is 8 times the national average. This means that at the end of a year, if the interest is compounded monthly and you make no further deposits or withdrawals, you will earn $80. That might not seem like much, but when you compare rates on a standard savings account, it’s not that bad.
Deposit the same $10,000 in a standard savings account, with an APY of 0.05% (the current national average reported by the FDIC), and you’ll earn $5.00 at the end of a year if interest is compounded monthly and you make no further deposits or withdrawals. Plus, even if rates are low right now, that doesn’t change the fact that you need emergency savings.
SHOULD I PUT MONEY IN A HIGH YIELD SAVINGS ACCOUNT ON A CD OR IN THE MONEY MARKET?
Does it make sense to switch banks for higher rates?
You might be thinking that if your bank is paying 0.65% APY on your high yield savings account and the bank down the street or online is paying 0.75% APY, it makes sense to switch accounts. But if you’re considering the time it takes to open a new account, change your direct deposit information, and transfer your money, you might want to think twice. In one year, the difference you would make on your $10,000 would be approximately $10.00.
You could even consider an interest-bearing checking account, CD, or money market, but the rates aren’t much different. If rates drop on your High Yield Savings Account, the best thing to do is do nothing. Rates on savings accounts go up and down, and sometimes the headache of opening a new account or moving accounts isn’t worth the few dollars you’ll save
Find the best savings account for you at Credible and qualify today.
OPEN A HIGH YIELD SAVINGS ACCOUNT TO EARN MORE INTEREST ON YOUR MONEY