Five Minute Finances is a series of tips on how you can save significant money or reorganize your financial life in just five minutes. These tips appear Monday, Wednesday, and Friday on The Simple Dollar.
The average American has a savings account at their local bank, which offers on average an interest rate of 0.5%. That’s abysmal, and it’s basically impossible to get ahead with that kind of interest rate.
Fortunately, there’s a new crop of savings accounts now appearing with all of the features of a regular savings account (FDIC insured, easy deposits) with an interest rate that actually works for you – regular rates at 4.5% APY or above and some introductory offers as a $25 sign-up bonus or a 6% APY over an introductory period.
How much can I make? Let’s say you have $1,000 in your savings account. A typical savings account earns about 0.5% APY, so after a year you’d have $1,005 in the account. HSBC Direct, for example, has a 5.05% APY, meaning that after a year, you would have $1,050.50 in the account, which is $45.50 more than you would in your local neighborhood savings account. Every year after that, the money you can make in a high-yield savings account is even greater than your local simple savings account.
When you’ve found a bank, just sign up and transfer some money in from your checking account. I’d recommend setting up an automatic withdrawal plan into that savings account – even just a little bit each week – so that you can steadily grow that account over time. I use such a scheme myself to keep my emergency fund well funded – and an emergency fund is a valuable thing to have so that surprises don’t derail your financial plans.