This story is part of the CNBC Make It’s One-Minute Money Hacks series, which provides simple, straightforward tips and tricks to help you understand your finances and take control of your money.
Building up your emergency savings can take time, but it’s crucial to make sure you can cover any unforeseen costs. However, your savings account probably isn’t earning a lot of interest.
A high yield savings account with an online bank can offer much more. This can be a good place to store your emergency savings and let them earn interest without any investment risk. These accounts also offer more liquidity than investing through a brokerage account, making it easier to withdraw your money if you need it in an emergency.
The average savings account generates an annual percentage return of around 0.06%, while high yield accounts currently earn around 0.5% APY.
Even if it’s not as much as they won before, it’s still better than nothing.
Let’s compare. Suppose you have a balance of $ 5,000. With a rate of return of 0.06%, you would earn about 25 cents over a year.
But with an APY of 0.5%, you would be making around $ 2 per year. Again, it’s not a huge amount, but it’s still eight times as much.
There are a variety of different accounts with different terms and interest rates, so be sure to shop around and find the account that’s right for you.
But in general, high yield accounts are available from online banks which usually do not offer monthly fees or minimum balance requirements. It also makes it easier to manage your money wherever you are via an online banking app.
There are drawbacks, however. Most online banks don’t have a physical location, and not all of them offer ATM cards for easy withdrawals. In addition, the interest rates on high yield accounts are variable. So if they can go up at any time, they can go down too.
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