IN CASE YOU haven’t heard the stat: The median savings-account balance of the typical American is $1,200, according to a 2023 survey from The Motley Fool. (That’s regardless of income—and down from $4,500 in 2022.)
If reading that stresses you out, I know how you feel. I’ve heard it from so many people in the financial field: A savings account’s primary role is to step in and support you in an emergency, yes, but having a cushy financial airbag also works wonders for peace of mind. Just knowing the money is there helps.
There’s evidence that when people don’t have enough saved, they give up on aspects of the good life. A 2024 Market Watch survey found that roughly 94 percent of respondents said they have sacrificed their mental health in some way to get by financially. This included ignoring their hobbies, not eating healthfully, and skipping social events.
What makes things even worse is that most savings accounts actually work against you. Yup! At the start of 2024, the average interest rate for a savings account was a meager 0.47 percent. (A paltry bump up from .06 percent after interest rates jumped in 2022.) Other than the fact that that is a ridiculously small amount of interest to earn, low rates mean that continued inflation will slowly eat away at your savings. So you’re trapped. To pull yourself out of this savings spiral, you need to sink in more money that you may not have.
Except there’s a way out: High Yield Savings Accounts. HYSAs typically pay around 10 times as much as the national average. In early 2024, you could find multiple accounts offering rates ranging from 4 percent to well over 5. Rates this high may seem too good to be true, but these high yield accounts aren’t doing any shady math to provide you with higher returns.
HYSAs have been around for a couple of decades, and they grew in visibility during the early 2000s, when online banks could offer big interest rates because they didn’t have to cover real estate or brick-and-mortar staffing costs.
Now online banks are everywhere, and even credit-card lenders such as American Express, Capital One, and Discover have ventured into the online banking world and offer their own versions of HYSAs. It’s true that some of these savings accounts place limits on how often you can make withdrawals, but this is savings we’re talking about here: You’re not supposed to dip into them frequently.
Yet despite these amazing rates, only 22 percent of Americans with short term savings are earning 4 percent or more, according to a 2024 survey by Bankrate. And if you’re hesitant to switch, consider math.
Even if you have a baseline $1,000 in savings, a 4.5 percent HSYA will earn you about $40 more per year than a traditional 0.47 percent account, if inflation holds at 3 percent. If you’re fortunate enough to have $20k socked away, that’s $826.28 more per year between the two types of accounts. Have $50k in savings? That’s a difference of $2,065.70 annnnd also it might be time to move all that savings into a more diversified portfolio, Mr. Moneybags.
My advice is to never accept 0.47 percent, but don’t stress (there’s that word again) trying to find the absolute highest possible HYSA rate. At the start of 2024, earning anything above 4 percent would have been great.
Bankrate can help you with a list of banks that offer HYSAs. Find one that fits your needs, make the switch, and then do something you may not have done in a while: breathe—even if it’s just a little bit easier.
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