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A high-yield savings account is one of the best places to keep your money if you’re saving for any reason. High-yield savings accounts are incredibly safe and give you an interest rate far better than you would get from a traditional bank savings account. In some cases, you could earn over 100 times more. That’s a huge difference! So if you're wondering what a savings account can help you with, read on to learn five great uses for a high-yield savings account.
1. Emergency Fund
From unexpected car repairs to sudden job losses to medical emergencies, unplanned expenses are practically inevitable in life. Not having the funds to cover the financial aspects of these hard times can make matters worse, and one way to prepare is to start an emergency fund. Using a high-yield savings account, you can save a little at a time. The general rule of thumb is to save around three to six months' worth of expenses, though some people save more. But starting small is OK too because every bit will add up over time. Then, when a need comes up, you'll be able to tap into that emergency fund instead of going into debt.
I’ve kept my emergency fund in high-yield savings accounts for more than a decade. I’ve had few financial emergencies, but I never had a financial crisis thanks to my savings.
2. Vacations or Other Big Purchases
I’m a big fan of using credit card rewards to pay for vacations, but I can’t pay for the entire vacation with miles and points. For activities, meals and other needs on vacation, it’s good to have savings set aside.
Many people use high-yield savings accounts to automatically save a certain amount from every paycheck for future vacations. Others may set up a temporary savings goal for a major purchase. When I wanted to buy a $1,000 DJ mixer, I saved around $50 per month in a high-yield savings account until I could make the big purchase debt free.
3. Home or Car Down Payment
New cars and homes are some of the biggest purchases you’ll ever make in your life. To lower your monthly payment and improve your odds of getting approved for a loan, it’s a good idea to save up a big down payment.
When your money is in a high-yield savings account, it will likely earn a lot more than your checking. At the same time, funds are typically protected by the FDIC for up to $250,000 per account holder per financial institution. You can check if your account is covered in the FDIC database.
4. High-Yield Savings Accounts for Kids
As a dad to two amazing girls and an awesome little boy, I want to make sure my kids are financially prepared for the future so they can start life on a solid footing. That includes college savings and long-term investments. When they are old enough to have their own money, and it’s more than fits in a piggy bank, a high-yield savings account is the best place for them to save.
Kids should get the same FDIC insurance and high interest rates that you do, after all. And thanks to the power of compounding, kids may see the best benefits, as their funds have more time to grow. Plus, showing them their bank statements and interest earned can teach them important lessons about money while motivating them to save instead of spend.
5. Remove the Temptation to Spend
Some people have a personality where they can’t seem to hold onto money for very long. It’s important to understand yourself and your money habits. If you’re the kind of person who loves to spend, a high-yield savings account can be a barrier that helps you set aside your money for long-term goals with less temptation to use those funds for short-term splurges.
If you're paid with direct deposit, you may be able to split your paycheck into two accounts. Sending part of your income to savings automatically means you probably won't even miss it. If that’s not an option, you can also set up recurring automatic transfers from checking to savings so you don't have to think about it.
High-Yield Savings Are the Best Kind of Savings
I don’t know about you, but I’d rather have more money than less. If you want to make more from your savings, a high-yield savings account is a great choice. And with other benefits, like FDIC insurance and automated savings features, there’s no reason to settle for a sub-par savings account.
If you’re in the market for a better savings account, check out our list of the best high-yield savings accounts to fit your needs.
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