Money Tip of the Day: Stop Using a Traditional Savings Account

If you’re still keeping your savings in a traditional brick-and-mortar bank account earning 0.01% interest, you’re leaving money on the table.

One of the easiest ways to make your money work harder is by switching to a high-yield savings account (HYSA).

Traditional Savings Accounts vs. High-Yield Savings Accounts

Many traditional banks offer interest rates around 0.01%. That means if you have $10,000 sitting in savings, you may earn only about $1 per year in interest.

Compare that to a high-yield savings account, which may offer rates 300 to 400 times higher. At a 4.00% annual percentage yield (APY), that same $10,000 could earn roughly $400 per year without taking on stock market risk.

Why Do High-Yield Savings Rates Change?

Savings account yields are heavily influenced by the economy and interest rates set by the Federal Reserve.

Generally, when interest rates rise, banks increase the yields they pay on savings accounts. When rates fall, savings account yields tend to decline as well. In other words, high-yield savings rates move with the interest rate environment.

Why Are Online Banks Able to Pay More?

Many of the best high-yield savings accounts are offered by online banks rather than traditional brick-and-mortar institutions.

Because they don’t have the overhead costs associated with physical branches, online banks can pass those savings on to customers through higher interest rates.

Most online banks require you to transfer money electronically to and from your checking account, which usually takes one to three business days.

Some popular high-yield savings account providers include:

Ally Bank
Capital One 360
Marcus by Goldman Sachs
Discover Bank
SoFi
Synchrony Bank

All of these banks are FDIC insured and offer convenient online and mobile banking.

Every Dollar Should Be Working for You

I believe every dollar should have a job.

Money that’s sitting idle in a low-interest savings account isn’t working very hard. Even your emergency fund can generate extra income while remaining easily accessible.

Over time, those extra dollars earned from interest can add up and help accelerate your journey toward financial independence.

What About Investing Instead?

Another option is to keep money in an after-tax brokerage account.

Brokerage accounts offer greater long-term growth potential, but they also come with risk. Stock prices fluctuate, and your account balance can temporarily decline during market downturns.

For money you’ll need in the near future—such as an emergency fund, vacation savings, or a home down payment—a high-yield savings account is often the safer choice.

For long-term goals, investing in a diversified portfolio through a brokerage account may provide higher returns over time.

The Bottom Line