What Is a High-Yield Savings Account?

High-yield savings accounts can be used to meet short or long-term savings goals. According to Peter M. Ferriello, a certified financial planner with Mollot & Hardy, Inc. Wealth Advisors, high-yield savings accounts are best “for those looking to keep funds in cash, possibly for use as their emergency fund, as they will receive a higher rate of return than they would in their checking account.”

So what is a high-yield savings account good for? You can use these accounts to save for:

• Financial emergencies
• A down payment on a home
• Purchase of a new car
• A dream vacation
• Wedding expenses
• Starting a side hustle or business
• Home repairs or renovations
• Just about anything else you might need money for

But how do you get the most out of your high-yield savings account?

The first step is choosing the right high-interest savings account to open. Again, that means looking at different banks to see who pays the best APY for high-yield savings, how much you’ll need to deposit, what you might pay in fees and how you’ll be able to access your money. 

You can also maximize a high-yield savings account by automating your savings efforts. So, to create your emergency fund you could set up an automatic transfer from your checking account. Every payday, you can transfer a set amount of money until you’ve reached your goal of saving three to six months of expenses. 

Another way to grow your high-yield savings is to use windfalls to boost your balance. For example, you might decide to stash your tax refund or stimulus check in savings along with rebates, refunds or cash gifts you receive for birthdays or special occasions. 

Should you use a high-yield savings account to save for retirement or higher education? Not so fast, says Lawrence Solomon, a certified financial planner with Mercer Advisors. Keeping the majority of your money in savings instead of investing it in the market could cause you to miss out on significant returns in the long run. 

“The real rate of return on cash has not kept pace with the long-term rate of inflation,” says Solomon. So, for long-term goals, he recommends investing in the market, where you can “grow your money faster than inflation is shrinking it.”