When I was but a wee little thing, my mom took me down to the local branch of our regional bank and helped me open a savings account. We deposited my birthday money from Grandma, and I was told in no uncertain terms that I would thenceforth deposit half of my $2 a week allowance into the account (the other half went into the basket at church… a fact about which this apostate is still a little bitter).
Then Mom and the bank clerk told me of the wonders of savings accounts. “It’s a safe place to keep your money while you’re saving up for something like a car!” they said. “Plus, it earns interest.”
Interest, as you know, has the ability to work for you and for the forces of darkness in equal measure. You want your savings and not your debts to earn interest. So having a savings account is a great way to lure the vicious specter of interest to your side of the financial war.
I was all excited to check my balance and see how much interest I’d earned after a few months of dutifully depositing half of my allowance. But alas…
Baby’s first savings account wasn’t accruing jack shit in the way of interest. This is because most brick-and-mortar banks offer savings accounts with dismally uncompetitive interest rates.
I was facing an APY (annual percentage yield) of 0.01%. That’s… almost literally nothing. Which meant my savings weren’t even going to keep up with inflation if I trusted to the false promise that interest would help grow my savings.
Enter the high-yield online savings account.
High-yield savings accounts
Unlike their typical milquetoast counterparts, high-yield savings accounts actually fulfill the promise of interest-based savings growth. These sexy little accounts are a thing of the future, bestowed upon us by banks looking to stay competitive. They offer interest rates up to 1.35% APY, and they come with all kinds of perks like low or no fees, ATM access, and user-friendly online interfaces.
Here’s a list of some of the best high-yield savings accounts this year from NerdWallet.
Personally, I can vouch for Ally and Alliant as far as being reliable, easy to use, and having a great online interface and customer service. And you know this recommendation comes from the heart because we don’t accept sponsorships, paid ads, or affiliate links here on Bitches Get Riches. (You’re welcome. Now please support our Patreon.)
Why do typical low-yield savings accounts even exist if high-yield savings accounts are a thing? For one thing, the brick and mortar banks have an advantage when it comes to customer loyalty. My parents are still using the bank where I opened my first savings account simply because change is hard. It takes effort to research interest rates and transfer funds! And Janine at their local branch always gave their old dog a cookie when they stopped by, so that’s got to be worth at least 5% interest, right?
My parents are still using the bank where I opened my first savings account simply because change is hard.
For another, millions of Americans don’t even have a savings account. Which, while terrifying and tragic, means that low savings account interest rates is the least of their problems.
But you, my brilliant bastion of budgetary… brilliance, are trying to get ahead. So you can’t afford not to transfer your liquid savings to a high-yield savings account right the fuck now.
I’ll use myself as an example
I used to have my savings account at a regional bank. The account earned interest at 0.01%. I had $7,000 in the account, and in one month it earned… $0.05 in interest.
I decided to transfer $6,000 of that savings to an account with Ally. Their interest rate is 1.25%. That’s a whopping 125% higher than my regional bank’s savings account!
In the first month I had the account open, I earned $5.19 in interest.
That’s over one hundred times as much interest as I’d earned in the same amount of time with my old savings account! And sure, $5 ain’t no thang… if you’re a financially illiterate person who is bad at math.
Thanks to the Law of Compounding Interest, that $5.19 is going to increase my monthly interest by leaps and bounds. It means my savings account is going to keep up with inflation even if I never deposit more money in it. The $0.05 in interest I’d earned before is but a pittance in comparison.
And I don’t know about you… but I like my money working for me while I do other shit. I imagine my dollars as lusty little bunnies, gettin’ down with each other in the bank vault at night. All their little greenbacked bunny progeny better be taking up residence in my account!
I imagine my dollars as lusty little bunnies, gettin’ down with each other in the bank vault at night.
But shouldn’t I be investing this money instead?
You should of course have investments. But investing your money limits how you can spend it. It’s great for the long term, or for retirement. But if you’re saving up for something in the short term, or if you need an emergency fund on hand, it’s useful to have some liquid savings easily accessible and keeping up with inflation.
So there’s lots of reasons why you’d want to have a big chunk of liquid cash sitting around for a little while. And there are approximately zero reasons why you wouldn’t want it earning as much interest as possible.
There’s lots of reasons why you’d want to have a big chunk of liquid cash sitting around for a little while. And there are approximately zero reasons why you wouldn’t want it earning as much interest as possible.
Avoid depreciation! Make interest work for you, not against you! Break up with your brick and mortar bank’s shitty savings program and get yourself a high-yield savings account! You don’t want to plant your savings in a fallow field, only to sprout the occasional nickel here and there! You want to be reaping them five dolla bills on the regular, with no time, effort, or thinking required!