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When the interest rate on a high-yield savings account is around 1%-2%, is it really high-yield?
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These days, my answer is “yes”. The rate may not sound extraordinary, but to be called a high-yield account, it has to earn just a bunch more than the average savings account. Currently, it has a weak 0.13% APY, according to Federal Deposit Insurance Corp. Therefore, check the box for accounts earning more than 1%.
The problem is that inflation makes that figure even smaller. For August 2022, the US Bureau of Labor Statistics reported that the Consumer Price Index was 8.3% higher than the year before. (The CPI note changes the price of certain commodities as compared to the earlier period.)
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This means that in a bank, you may have 1.5% interest on your money, whereas in the real world, the value of your money is reduced by 8.3%. It’s hard to feel like your money is sitting in a “high-yield” bank account with those numbers. But in inflationary situations, it’s important to remember the main reason for saving money first: so that it can be available to you when you need it.
See US Treasury rates here.
Savings is much more than just interest rates
Savings is often about paying for things you can’t plan for. Unexpected major car repair? This happened to me last month. I can tell you that an . transfer cash from emergency fund Seems a lot better than adding it to a credit card balance to cover a $500 bill. (Now this is where you can find some high rates – even credit cards with the most attractive terms have rates as high as 15%. The problem is you’re paying it, not earning it. are doing.)
If you’re lucky that you don’t have unexpected expenses, your money in a high-yield account earns more than a regular account. Let’s say you keep $5,000 in a savings account that earns 2% APY and don’t touch it for a year. Your balance will increase to about $100. In an account that earns an above-average rate of 0.10% APY, you’ll only earn five rupees after a year.
you can use a savings calculator To see other scenarios. While no real interest rate scenario will keep up with today’s inflation rates, it is good to earn as much interest as possible, especially for an account whose main objective is to keep cash ready in case of an emergency.
I should add that you can make a little more by putting your money in a certificate of deposit or a lot more by buying a bond that can keep up with inflation. But any of these will lock-in your money for a certain amount of time, perhaps a year or more. And it will prevent you from having easy access to your funds when you need them. If your emergency cushion is fully funded, these options are worth a look.
Too What will student-loan borrowers do after a $10,000 or $20,000 loan is forgiven? MarketWatch asked the readers – this was their No. 1 answer.
Your savings rate is likely to increase for some time
interest rates often rise After the Federal Reserve announced a rate hikeAnd the Fed has raised rates four times so far in 2022. The Fed is due to meet again on September 20-21 and will likely announce another rate hike.
I have noticed that after these announcements, financial institutions which already have the highest savings rates are among the first to raise their rates again. Shop now at a good rate, and you may not need to shop later.
Read further: CDs are in vogue with Treasury and I-bonds as a safe haven for your cash
We cannot control interest rates or inflation. But what we can control is where we put our savings and how we think about it. No matter the economic trends, if you put your money in a high-yield account, you have the best chance of earning the best possible rate and surviving an emergency without getting into debt.
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Margaret Burnett writes for NerdWallet. Email: [email protected] Twitter: @margaret.