Savers with high yield accounts have enjoyed the Federal Reserve’s recent interest rate hikes. The highest annual percentage yields rose from 0.50% in the early 2022 to over 3% now.
However, not everyone has been able take advantage of this opportunity. A survey by the Federal Deposit Insurance Corp. in 2021 found that nearly 6 million households didn’t have a savings or checking account. There are many reasons for this, but the main takeaway is that not all people are able to benefit from high savings rates.
Even if you have savings accounts, you may be missing out if your account is with a large bank. Large banks are known to offer savings rates as low as 0.1% APY. Many have not budged from this low rate in the past year.
It’s never too late to make a change as a customer. Here are some ways to find out what you may be missing and how you can fix it.
Your money earns you money
High-yield savings accounts, also known as high-interest savings accounts, earn more interest than average savings accounts. The average savings account earned a quarter of one percent as of November 2022. High-yield accounts earn much more (see the 3% above). This is a stark difference, if you do the math.
If you kept $5,000 in an account earning 0.25% APY over a year, you would earn just under $12 in interest. If you held the same amount in an account earning 3% per year, you would earn more than $150 in interest.
Higher savings rates may help you keep up to inflation
Wondering why the APY for some accounts increased so fast and so significantly this year? The Fed made steps to combat inflation by increasing the federal funds rate. This eventually had an impact on savings account rates.
These savings rates can be a saving grace. These savings rates help protect your purchasing power from rising prices, at least for a small amount.
Prices have been on the rise. The U.S. Bureau of Labor Statistics’ Consumer Price Index, which acts as a proxy to inflation, shows that the year-over-2018 price rise for a selected set of goods in November 2022 was 7.1 span>
If you’re able to save money into a high yield account, you can protect your purchasing power from rising prices. The interest you earn will offset those price increases.
Even though high-yield accounts earn a 3% APY, they aren’t keeping pace with inflation. However, it is better to protect some than none.
What should you look for in a high yield savings account
Look for high-yield accounts with strong rates (right at the moment, that’s 3% or more) and low to no monthly fees.
Are you far from a bank? It’s no problem. Online savings accounts are the best. You can access basic banking services, including mobile check deposit and automatic transfer, via your smartphone or computer. Online financial institutions have lower rates than traditional branches because they can save money on overhead and pass it on to their customers as higher rates.
What should you do if your savings account is closed
Some people are not approved for savings accounts on the first attempt. It is possible that the institution will not be able confirm your identity. You may also have a negative bank history such as an unpaid past fee that was reported to ChexSystems.
You can minimize your losses if it happens to you. There are steps you can take today to improve your consumer file, such as opening a second chance account. You may be able to open a regular bank account and look for high-yield options if you have a solid financial history over a period of months or years.
The recent Fed rate hikes have been a boon for savers who have money in high-yield banking accounts. However, people without these accounts are less likely to reap the benefits. However, savings rates are still high and it is not too late for you to open a high yield account and begin taking advantage of them.