For several years, people have preferred leaving their money in high-yield savings accounts due to the high interest. They offered holders the opportunity to make money by simply saving money into their savings accounts.
However, in recent years, high-yield savings accounts have ceased paying the impressive interest rates they are used to.
What are high-yield savings accounts?
A high-yield savings account pays 20 to 25 times higher than the standard savings account. In many cases, people hold their savings accounts at the same bank where they have their checking account.
There has been a lot of uncertainty in the financial industry, with many people considering the type of account they keep their money.
Since early 2020, there has been a significant fall in interest rates paid on high-yield accounts. In March, the Federal Reserve reduced the federal fund rate from 1.00 to 0.25. This prompted banks to respond by reducing their own interest rates. This has seen a big fall from the once-impressive savings interest rates of 2.2% to as low as 1%.
However, high-yield savings accounts have not lost their true identity. Financial analysts agree that high-yield savings accounts are still a good option largely because the FDIC insures them.
The COVID-19 pandemic has caused a lot of economic uncertainty, with many rethinking how to save while also meeting immediate needs. Before deciding whether to save your money in a savings account, it is important to consider when you plan to need it.
“It really all comes back to what they expect to use the money for in the future,” says Shon Anderson, a certified financial planner and president at Anderson Financial Strategies. “In other words, what is their timeline for needing to use this extra cash?”
Uncertainty about the future
The current pandemic has cast a lot of uncertainty on people’s future, many of whom are concerned about a recession soon. In such times of uncertainty, financial experts recommend saving your money in areas where you can easily access it in case of an emergency.