3 Things 3-1-25

 Thing One

HYSAs Revisited

A year or so ago, we discussed high yield savings accounts (HYSAs). Given the cash that many investors are still sitting on, we thought we’d revisit the subject. What follows is a primer per Miranda Marquit writing for Buy Side WSJ:

“…Key takeaways

• High-yield savings accounts often pay up to 10 times higher APYs than their traditional counterparts.

• Benefits of high-yield savings accounts include a low-risk way to grow your savings faster and reach financial goals sooner.

• Consider fees, convenience, accessibility and account features in addition to APY when comparing high-yield savings accounts.

What is a high-yield savings account?

Like other savings accounts, a high-yield savings account isn’t meant for day-to-day transactions like checking accounts. While checking accounts help you with activities like cash management and bill pay, savings accounts sometimes come with withdrawal limits and are primarily designed to keep money safe for future goals.

High-yield savings accounts don’t come with an official designation, though. The FDIC doesn’t recognize high-yield accounts as different from their conventional counterparts. “It’s certainly not an official term,” says Ryan Derousseau, a financial adviser at United Financial Planning Group in Hauppauge, N.Y. 

Derousseau points out that the term means different things to each financial institution. You can find accounts labeled “high-yield” offering APYs that differ by a percentage point or more. If you’re looking for the best high-yield savings account rates, you might need to compare several offerings. 

How do high-yield savings accounts work?

Banks, credit unions and fintech companies offer savings products with higher yields than the national average. As of February 2025, the average savings account yield is 0.41%, according to the FDIC. The top high-yield savings accounts often have rates of more than 10 times the national average.

When you put money in a HYSA, the financial institution has a reasonable expectation that it can use that money by lending it to others, so the institution is willing to pay you a higher-than-average annual percentage yield (APY). 

For example, if you open a HYSA, the institution might offer a 3% APY on your money. At the same time, though, the institution might loan your money to someone else at 8% APR. The institution remains profitable, and you receive a higher yield as an incentive to keep your money in savings.

Depending on the financial institution, you might be limited in the number of withdrawals or transfers out of the account each month. In the past, certain transfers and withdrawals were limited to six each month, but that rule was amended in 2020. However, financial institutions can create their own requirements, so you need to pay attention to the limits that your bank or credit union places on withdrawals and transfers.

What are the benefits of high-yield savings accounts?

• Higher-than-average APY: With a HYSA, you can access higher yields than you would receive with a more traditional savings account. Your money grows faster as you earn a higher rate of return and you’re more likely to reach your financial goals sooner.

• Low-risk: High-yield savings accounts are considered low-risk. As long as your institution is backed by the FDIC or National Credit Union Association (NCUA), your cash is protected in the event of institutional failure (up to federal limits). You don’t have to worry about losing your principal due to market conditions. However, you do need to consider inflation risk.

• High liquidity: While the money in a HYSA isn’t meant for day-to-day transactions, it is easy to access when needed. It’s highly liquid, and you can usually transfer the money to another account or withdraw it quickly. If you need the money for an emergency or meet your goal and want to use it for a major purchase, there’s usually no wait to access the funds.

How to choose the best high-yield savings account

Once you decide to move your money to a HYSA, it’s important to consider which is the best high-yield savings account for your purposes.

What factors should you consider?

When making your high-yield savings account comparison, some of the most important factors to consider include:

• APY: Compare yields between accounts. Review whether you receive a different yield based on how much you have in the account. For example, some savings accounts have yield tiers. Don’t simply pick the rate at the top of an online list, says Derousseau. “You’re going to want to understand what’s required to get the rate that you’re seeing on-screen.”

• Minimum balance requirements: Some accounts require a minimum opening balance or that you maintain a minimum daily balance. Before opening a HYSA, make sure you can meet the minimum balance requirements or look for an account with no minimums.

• Withdrawal limits: Check with the financial institution to determine whether you’re subject to withdrawal and transfer limits. Pay attention to the types of allowed withdrawals and transfers to avoid potential penalty fees.

• Features and benefits of the HYSA: Do you want ATM card access? Would you like to be able to deposit checks remotely? Do you want an account that allows you to set up an envelope or bucket system for different savings goals? Consider the features of the account and whether they meet your needs.

• Insurance: Verify that the financial institution has the appropriate insurance. For banks, it’s FDIC insurance, and for credit unions, it’s NCUA insurance.

• Accessibility: If you prefer in-person access to your money, a local bank or credit union branch might make sense for your HYSA. On the other hand, if you don’t care about branch access, you might look for an online savings account with a good mobile app and a large fee-free ATM network.

How does APY impact your savings?

While APY is an important consideration when choosing the best high-yield savings account for your needs, it’s not the only item to consider. A higher APY can help you reach your goals faster, but switching financial institutions for a slightly higher APY might not make sense.

For example, if you have $5,000 and contribute $250 a month in a savings account yielding 3.85% and compounded daily, your total interest earned at the end of the year is $249.83. On the other hand, you find a HYSA with 4.25% APY compounded daily. At the end of a year, your total interest earned is $276.30. You might decide that the difference of $26.47 isn’t worth the trouble of moving your money to a new account.

If you’re only earning the national average, though, the switch might be worth it. At 0.41% APY compounded daily, you might only earn $26.19 in total interest for the year...” 

Thing Two

The Difference Between... 

There’s a short video created by a personal finance coach circulating on the internet.  See the text transcribed below:

“The difference between poor people, middle class, and rich people is not how much money they make.  And it’s not even how much money they have.  The difference between poor people, middle class people, and rich people is what they believe the purpose of money is.  Poor people believe the purpose of money is to pay bills.  So the only reason they go to work every day is so they can get some money on Friday and hand it over to somebody else.  Middle class people think the primary purpose of money is to establish good credit so they can buy things they can’t afford and pay them off over time.  Rich people understand that the primary purpose of money is to turn it into more money.  So I’m going to take the money that I make, turn it into more money than I had, and then and only then can I be wealthy.  I can only be wealthy if I hold onto my money long enough for it to get pregnant and have some babies.  I want to take every hundred dollar bill I get and put it in the money maternity ward.  That’s the mindset that is necessary to develop the skillset of investing.”

Thing Three

Just A Thought 

"People do not decide their futures, they decide their habits and their habits decide their futures."— F.M. Alexander