Whether interest rates are going up or down, many big banks pay only minimal returns on traditional savings accounts — so if your cash is still sitting in a basic account at a large institution, you might be losing out.
A series of Federal Reserve rate hikes in 2022 and 2023 had savings rates on the upswing for a couple years — but in September 2024 the Fed changed course and cut rates by a half a point.
The wisdom is the same no matter which way rates are trending: You’ll likely earn more on your savings with a high-yield savings account (or possibly other types of savings options) rather than with a basic, big bank savings account.
Key takeaway: If your money’s in a basic account at a big bank, you’ll likely find other accounts that’ll let you earn more on your savings.
Basic savings vs. high-yield savings
Here’s an example of the difference between a high-yield savings account and a basic savings account:
If you have $1,000 deposited in a traditional savings account at a big bank that pays the current average rate of 0.45%, your deposit would earn $4.50 over the course of the year.
If you put the same $1,000 in a high-yield savings account paying an annual percentage yield, or APY, of 3%, you’d earn $30 over the course of the year. Of course, the larger your bank balance, the more you stand to gain.
Top annual percentage yields, or APYs, as of October 2024 for high-yield accounts were in the range of 4% to just over 5%.
Options for high-yield savings
The search for higher returns can go beyond high-yield checking and savings accounts. Here are more options that can help you better meet your short-term savings goals.
- High-yield savings accounts — Often available online, these accounts can offer much higher APYs than you’d find with traditional savings accounts.
- High-yield money market accounts — A money market account is essentially a hybrid between a checking and savings account. It lets you write a limited number of checks each month and sometimes make debit purchases.
- T-bills — Treasury bills are short-term investments that you can redeem for their face value in one year or less. You can buy T-bills online directly from the U.S. government at TreasuryDirect. Rates on a six-month T-bill in in October 2024 were 4.5%.
- Certificates of deposit — A CD is a bank account that pays you a higher interest rate in return for locking your money away for a certain period of time.
See our picks for the best high-yield savings accounts.
Why savings matter
You never know when you might need to rely on your savings to handle unexpected expenses like a major household repair, hospital visit or job loss. Having ready access to an emergency fund can help you keep your finances on track.
What to do
- How much to keep on hand — A good rule of thumb is to set aside enough cash to cover three to six months of living expenses. But even $1,000 or so is a good start.
- Where to keep an emergency fund — Safe storage and easy access when you need it are key, so a regular savings account — or high-yield savings account — may be your best bet.
- When to use it — Generally, you should tap your emergency fund only as a last resort. You may want to create guidelines for yourself on what constitutes a financial emergency before you ever have to tap it.