NerdWallet: What is a high-yield savings account, and is it worth the bother?

by | Sep 20, 2022 | Stock Market

This article is reprinted by permission from NerdWallet.  When the interest rate on a high-yield savings account hovers around 1%-2%, is it really high-yield? These days, my answer is “yes.” The rate may not seem exceptional, but to be called a high-yield account, it just has to earn a bunch more than the average savings account. Currently, that’s a weak 0.13% APY, according to the Federal Deposit Insurance Corp. So, accounts that earn above 1% check the box.

The problem is that inflation makes that figure seem extra small. For August 2022, the U.S. Bureau of Labor Statistics reported that the consumer price index was 8.3% higher than a year ago. (The CPI notes changes in the price of certain items compared to earlier periods.) What this means is that in a bank, your money may have earned 1.5% interest, while in the real world, your money lost 8.3% of its value. It’s hard to feel your money is sitting in a “high-yield” bank account with those numbers. But in the face of inflation, it’s important to remember the main reason you save money in the first place: so that it can be there for you when you need it. Check out U.S. Treasury rates here.Savings is about more than just the interest rate Savings is often about paying for things you can’t plan for. Unexpected major car repair? It happened to me last month. I can tell you that transferring cash from an emergency fund to cover the $500 bill feels a lot better than adding it to a credit card balance. (Now that’s where you can find some high rates — even credit cards with the most attractive terms have rates a …

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