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Why HYSAs are one of my favorite financial tools
One of the first financial concepts we learn as children is the idea of saving. Whether it’s gifts from a family member, the tooth fairy, or an allowance –– you’ve probably heard the well-meaning advice that you should “put aside” money for saving.
Don’t get me wrong –– I LOVE saving. This entire website is literally dedicated to me saving $100,000 by the age of 25. Without saving, I probably wouldn’t be here to tell you this. Unfortunately, so many of us are told over and over again, “just save money!” with no real tangible advice on doing so.
Saving money should absolutely be a strategic endeavor –– and there are tons of financial tools and strategies to help you save money in a way that’s not only fun but beneficial for your overall financial health.
One such tool that you’ve probably heard me bring up time and time again is the High Yield Savings Account, also known as an HYSA. In fact, I recommend that your emergency fund (the non-negotiable personal finance tool) stay safely tucked in an HYSA.
It’s not just an emergency fund that HYSAs are good for –– they’re a solid savings tool that you can use to make sure your money isn’t falling behind. HYSAs make great containers for vacation funds, wedding savings, and other short-term goals.
There are so many reasons to love an HYSA –– here are just a few.
HYSAs are accessible
High Yield Savings Accounts are generally built with all levels of finances in mind. Some do require minimum balances and automatic transfers –– but just as many do not. Additionally, because many HYSAs are online banks, you don’t have to travel to a traditional brick-and-mortar bank.
HYSAs also allow you to access funds quickly and easily. Like any other savings account, there are limits to your withdrawals. These withdrawal limits won’t be an issue unless you regularly have four to six different emergencies a month.
Out of sight, out of mind
More than the financial benefits from an HYSA, because these accounts are generally offered by online banks, you’ll likely have a checking account and a savings account at a different institution, which can be an easy “hack” for your brain. What do I mean?
Money is just as much psychological as physical. When we see money in one place, we’re more likely to think, “what’s the harm in moving over a little while I’m here?” when confronted with a totally non-emergency purchase.
Keeping your savings at a separate bank puts a few steps in your way –– the idea is to forget you have an emergency fund until you need it.
Your average savings account is giving you pennies a year. I wish I were kidding, but I truly am not. You’re lucky if you’re getting .02% interest. With an HYSA, you’re getting 50x that, which makes a difference over time.
With inflation seemingly sticking around, you can’t afford to have your money lose value over time. I know that .5% is far from the inflation we’ve seen in the last year, but it’s significantly more than the penny per $100 you’re currently earning.
When you might want to use another kind of savings account
If your savings goal is more than a year away –– like a downpayment for a house or a wedding, an HYSA might be too conservative.
When you’re saving for goals over a year out, and you know without a doubt that you won’t need access to that cash until then, a CD or Money Market Account might be a better bet. A CD, also known as a certificate of deposit, is an account that usually provides a slightly higher interest rate with the caveat that the money is untouchable for a contracted amount of time (usually in 6-month increments). The downside to CD’s is you can’t always add money to the account until after it “matures,” aka reaches the deadline you agreed to.
Alternatively, Money Market accounts operate like a CD/HYSA combo with some extra features (and downsides) –– including the ability to add money as you go. But, Money Markets also usually come with higher balance requirements and deposit requirements –– so they aren’t for everyone. Make sure to read the terms very carefully before opening.
What about retirement?
Are you saving for any big goals this year? Do you have questions about HYSAs and other savings accounts? Keep the conversation going in the comments below!