Personal Financesavings account, high-yield savings
Apr 06, 2024 09:40 AM EDT
If you have credit card debt or are borrowing money in any other way, you may find it difficult to cope with the exorbitant interest rates of today. On the other hand, the current high interest rate environment benefits you if your goal is to save money since it allows you to earn a higher return on your idle capital. And one very attractive option to do it is with a high-yield savings account.
Even while the majority of top high-yield savings accounts have returns between 4.35% and 5.25%, there are sometimes anomalies that might result in returns that are even higher. Mango, for instance, is now providing depositors with an APY of 6%.
In addition to shielding the value of your savings from the effects of ongoing inflation, today's high APYs have the potential to grow the value of your savings when adjusted for inflation, even if those APYs are variable.
However, in terms of earned interest, what does it really mean to earn a 6% APY? If you have a 6% annual percentage yield on your savings account, how much may you earn in a year? We'll compute that down below.
The total quantity of money in the account determines how much you could make. Your savings will yield a higher return for you the more money you save. Nevertheless, high-yield savings account interest rates are erratic and vulnerable to frequent fluctuations. Therefore, it's challenging to estimate accurately how much you may make in a year.
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Inflation remains a concern as February's rate surged to 3.2%, surpassing January's figures and exceeding the Federal Reserve's 2% target. With such inflation levels, savings not earning a return of 3.2% or higher are losing purchasing power over time. To combat this, individuals may consider high-yield savings accounts, which offer competitive interest rates that can help preserve the value of savings.
Traditional savings accounts often fail to keep pace with inflation, as indicated by the FDIC's reported average annual earnings of just 0.47% for such accounts. Consequently, funds held in traditional accounts may actually lose value over time when compared to high-yield alternatives, making the latter an appealing choice for those seeking to mitigate the effects of inflation on their savings.
One advantage of high-yield savings accounts is their safety, typically backed by FDIC or NCUA insurance. This insurance provides protection for account holders, ensuring that even if the bank holding their funds were to face financial difficulties or go out of business, their savings would remain secure.
Moreover, high-yield savings accounts offer liquidity, making them suitable for emergency funds. Unlike some investment options that may tie up funds for extended periods, high-yield savings accounts allow account holders to access their money conveniently. While there are limits on the number of withdrawals per month, typically around six, the flexibility offered by these accounts makes them a reliable choice for short-term savings needs.
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