With interest rates as high as it is currently, if you have not looked into the possibility of opening a high yield savings account, you should. As the Federal Reserve raises interest rates, so goes the interest rates offered by banks. However, not all banks are created equal. Your typical brick and mortar banks may still be offering interest rates below one percent. However, if you perform a quick search, you can easily find banks offering significantly higher interest rates. Consider taking advantage of these interest rates as one aspect when building a diverse financial portfolio.
The Federal Reserve
The Federal Reserve, in an attempt to combat inflation, has raised interest rates some 5.25 percentage points since March 2022. The increase in interest rates have reduced inflation from 9% to about 3%. This increase in interest rates have led to a number of kick on effects. For one, an increase in interest rates increases to cost of borrowing money. For example, borrowing money to purchase a car or a home have become significantly more expensive. However, the raise in interest rates have been a boon for savers. Especially those with funds in high yield savings accounts. The higher the interest rate, the faster savings grow.
Compounding
The higher the interest rate, the faster your money will grow. This is compounded with a high yield savings account. This is a result of compound interest. As you may know, compound interest is interest calculated on the initial principal and the accumulated interest of previous periods. As such, this is a cycle of earning “interest on interest.” Compound interest will make a deposit grow at a faster rate than simple interest, which is interest calculated only on the principal amount. As such, the higher the interest rate, the harder your money works for you.
High Yield Savings Account
The national average interest rate on savings account is jut about 0.42%. Most high yield savings accounts offer interest rates that are more than 12 times this rate. Once you have decided that you will take advantage of these higher interest rates, you will then have to decide which bank is right for you.
As high yield savings accounts are typically offered by online banks, it is almost a given that there will be no local physical locations. As such, besides the interest rate, consider ease of use, account accessibility, monthly fees and minimum balance requirements when selecting a high yield savings account.
Conclusion
As the Federal Reserve raises interest rates, so goes the interest rates offered by banks. As you know, not all banks are created equal. Your typical brick and mortar banks may still be offering interest rates below one percent. However, if you perform a quick search, you can easily find banks offering significantly higher interest rates. Consider taking advantage of these interest rates in building a diverse financial portfolio.
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