In the past twenty years, we have experienced severe financial crises that put millions of households and businesses on the brink of bankruptcy. The Great Recession and the pandemic taught us that wealth could be depleted quickly.

Even those with multimillion-dollar businesses and high-paying jobs are no exception. So, as we become more aware of this harsh reality, we must see the importance of proper planning to multiply and protect our resources.

Although slower than expected, the global economy is regaining footing today. Inflation remains higher than pre-pandemic levels, which can still erode the value of every currency.

Yet, the elevated interest rates may counter its impact and even open new opportunities to earn on bank deposits. As such, it may be a great time to capitalize on our savings accounts.

High-yield savings accounts are more attractive today, given their higher-than-usual annual percentage yields (APY). These can be valuable in whatever economic condition, especially during interest rate hikes. Even better, they can cushion the impact of inflation so their value won’t be easily affected.

In this article, we will observe the current macroeconomic conditions in the US and the integral role of high-yield savings accounts in money building.

 

A Brief Overview of the US Macroeconomic Conditions

In the ten years following the GFC, inflation was kept within the 1-2% range. This was thanks to the prudent fiscal management of the government and policy tightening by the Fed. The latter was instrumental in stabilizing inflation amid the continued economic recovery and boom. In 2020, both rates dropped in response to the pandemic recession.

 

However, since 2022, interest rates have remained higher than pre-pandemic levels to combat inflation. This proved helpful, as it halved inflation in a year. It remains in the 3-4% range, approaching the 2% target band.

Meanwhile, interest rates are still above 5%, although the Fed maintains a rate hike pause to avoid a potential slowdown. In addition, it may delay its rate-cut plans amid some upticks in inflation.

Higher interest rates may be challenging for borrowers, lending institutions, and banks with high real estate loan exposure. This means higher borrowing costs, which may lead to defaults and delinquencies.

In 2023, household borrowings ballooned to $17.3T, mainly driven by mortgage and credit card loans.

In addition, higher interest rates may affect their liquidity and overall financial health.

Conversely, elevated interest rates can be advantageous for banks with high corporate loan exposure since these loans are more interest-sensitive.

 

The same goes for savers since higher interest rates mean higher interest on deposits, which means higher annual percentage yields (APYs). This can be subject to questions since higher inflation can erode the value of money in the long run. But those with higher yields can offset its blow. And if the Fed’s goal materializes, high-yield savings may immediately reap the benefits.

 

Why Choose High-Yield Savings Accounts

Opening a savings account may help build wealth. But a high-yield savings account may have more benefits than you think. It offers many things that a regular savings account doesn’t. Here are the reasons you should choose a high-yield savings account.

 

High APYs and Compounding Interest

Interest rates are elevated, so bank deposit yields are typically higher today. However, the impact is more evident in high-yield savings accounts.

Earning a high annual percentage yield (APY) remains the primary goal of opening this account.

Today, high-yield savings accounts have APYs ranging from 4.50% to 5.35% versus the national average savings account yielding 0.45%. So, if you open a high-yield savings account and put in $1,000, it will increase to $1,045-$1,054 after a year. After five years, it can reach $1,298.

 

Meanwhile, in a typical savings account, the value will only increase to $1,005. After five years, it will only be $1,014. A difference of $280, right? Note that this is only an example of simple interest. The difference will be more comprehensive for banks using compounding interests on deposits.

Luckily, many high-yield savings accounts bear compounding-interests. Some even compound semi-annually and quarterly. The value will increase as you deposit more money.

 

Easy Access to Money

High-yield savings accounts are also accessible, given their vast ATM networks. Aside from that, managing and accessing money is easier today due to the prevalence of online banking and digital-only banks. We can now open an online savings account in a few minutes and enjoy its perks.

We can also transact anytime and anywhere as needed. Even better, online banking allows faster transactions and cross-border payments, reflecting figures in real-time. Hence, online savings accounts are advantageous for businesses.

 

Rewards

High-savings accounts also provide more perks than traditional savings accounts. Many banks and financial institutions offer sign-up bonuses when you open an account. It is more common for accounts with lower-than-average APYs.

Meanwhile, other accounts are similar to credit cards, providing cashback and discounts for select merchants. So, you can earn and save more on top of high APYs.

 

How To Assess High-Yield Savings Accounts

Here are some ways to assess and choose the best high-yield savings account.

 

Compare APYs

Comparing APYs is one of the first steps in filtering the list of providers. Again, typical accounts have an APY of at least 4.5%. So, you can remove those with much lower APYs, say 2% and below.

 

You may still consider those with APYs that are lower than the average, provided that the perks can outperform the APY. Suppose you open a high-yield savings account with an APY of only 3%; your initial deposit of $1,000 will only be $1,030 at the end of the year.

But if it provides a sign-up bonus of $100, then you will have $1,130 after a year. The total amount will be much higher than an account with an APY of 5% but has no sign-up bonus.

In short, APYs and sign-up bonuses should be assessed simultaneously.

 

Look for rewards and bonuses

Bonuses and rewards can help you save more, which can benefit entrepreneurs. Suppose a business purchases inventory amounting to $10,000. Businesses can get a discount or cashback if the merchant is affiliated with the bank.

 

If it’s 2%, the company will only pay $9,800, saving them $200. If they replenish inventory monthly, the total amount saved for the year will be $2,400, or 24% of the total inventory value.

Know the minimum balance requirements

Checking the minimum balance is a must! It is common among high-yield savings accounts and may put you in a disadvantaged position. A certain amount will be deducted if your balance falls below the required minimum amount. If you fail to check it, your money will be depleted without you noticing it.

Choose the one that doesn’t impose minimum balance requirements. If it’s impossible, choose those with a minimum balance you can maintain.

 

Assess monthly fees

Some accounts do not have a minimum balance requirement. However, they may charge overdraft fees on top of monthly ones, which can overwhelm your savings. Others do not charge overdrafts, but their monthly payments are too high. So, be cautious.

 

Check the security and accessibility

After checking all the advantages, you must ensure your savings have enough protection. Check if the FDIC or NCUA insures your chosen bank. Otherwise, it would help to think twice before putting your money in it. FDIC-insured banks can pay or return your money if they go bankrupt or insolvent.

 

You must also check how accessible every bank on your list is. This is crucial when conducting business, especially for urgent orders and payments. Choose those with an extensive ATM network since they can be found anywhere. If not, choose the bank offering cashback if its ATM network capacity is limited.

 

Takeaways

Opening a high-yield savings account can be more advantageous than you expect. With its high APY and perks, you can build your wealth instantaneously. Even so, it is essential to note that a bank may not have all the qualities you seek. As such, you must weigh its rewards and drawbacks.