Return of the high-yield savings account (and why you should open one)

Inflation is a fact of life in modern economies, and it causes the purchasing power of cash to decrease over time. For example, if you saved $1,000 in 1993, your money would have lost just over half of its purchasing power by 2022, being worth only $479. That’s losing half of your original money’s value in 29 years.

Inflation acts as a punishment against people who save money in cash, and it’s a problem that needs to be addressed by anyone who wants to be financially secure.

This is one reason why much financial advice centers around investing in the stock market (such as in your 401K or IRA). However, people still need cash in a bank account — money that’s immediately available and not subject to the ups and downs of the global economy like stocks are.

People need cash on hand for daily purchases, enough cash to serve as an emergency fund, and perhaps cash for short-term goals (such as a car fund or travel fund).

A high-yield savings account can prevent your money from losing purchasing power to inflation (or at least minimize the loss to inflation).

What is a high-yield savings account?

It’s a savings account — the same kind that your current bank has — but these accounts are at banks that have few or no physical locations. Instead, these banks are mostly online.

Due to the lack of physical locations, many people have never heard of these banks. They are not household names like Chase and Wells Fargo. But foregoing physical locations saves a massive amount of money, and these banks pass the savings along to customers.

Online banks are just as legitimate institutions as the big players — they are FDIC-insured, meaning that your money is insured by the government (usually up to $250,000). Many of these banks also have the features that you’d expect, such as debit cards, checks, and mobile bank deposit. Some even offer interest on checking accounts, though at a lower rate. Plus, they often do not have overdraft fees, minimum balance fees, and other headaches that we put up with at the big banks.

How much money can I realistically earn?

The interest rates of high-yield savings accounts constantly change, in part because the Federal Reserve (the US central bank) frequently changes the Federal Funds Rate (which you can think of as the “national”…