I’m a top money coach who paid off $300,000 of debt in three years and invested enough for early retirement. A high-yield savings account is the one money move anyone should make in 2023 for easy passive income.
What Is A High-Yield Savings Account?
If you have a checking account, you might also have a savings account that came with it. The bank likely is paying you less than one percent in interest.
A high-yield savings account is easy to open and it pays at least 10 times more than regular savings accounts, with all the same benefits.
A high-yield savings account may sound boring, but it is especially helpful if you’re focused on paying down debt, or a beginner investor.
Right now, rates are between 3% and 5%, which are not only the highest in recent history but are rivaling the returns of other savings and investing vehicles that carry more risk.
Earn Passive Income Immediately With Daily Compounding
Most high-yield savings accounts have daily compounding interest. This means that every day, you’re earning interest on your money.
Over the long run, this leads to more cash than you’d get in regular savings accounts that compound monthly.
While you are earning each day, most banks only deposit that interest into your account once a month. For me, knowing that I’m earning interest each day keeps me motivated to put money into the account on at least a weekly basis.
The Trade-Off For Higher Interest Is No Brick-And Mortar Services
High-yield savings accounts are almost exclusively available through online banks.
Banks without physical branches have overhead costs that are much lower for traditional retail banks with brick-and-mortar locations.
This allows online banks to offer more competitive interest rates to customers and charge fewer fees, or no fees at all.
Many are names you might not have heard of. But online banking also has become more popular with established financial institutions that are looking to bring in more tech-savvy customers.
The Perfect Place To Store Your Emergency Fund
High-yield savings accounts keep your funds within easy reach, so it isn’t too difficult to access them when you need to. Keeping your money here will let it earn some interest while shielding it from the ups and downs of things like the stock market.
If you do need to pull physical cash from this account, many banks partner with local ATM machines for little to no fees. Or you can transfer the funds to a checking account, or write an old-fashioned check to yourself to be cashed at a traditional retail bank.
They’re also a great place to save money for large expenses like future vacations or long-term money goals like saving up to buy a house.
What To Consider When Opening A High-Yield Savings Account
First, check the banks that you already bank with and see if they have a high-yield option to simplify having too many accounts in too many places.
I also highly recommend you check customer service ratings online for the bank before opening an account. Since many online banks are newer institutions, they may not have the customer service infrastructure should you run into any technical issues.
And with all bank accounts, confirm they are insured by the Federal Deposit Insurance Corporation, and that you don’t keep more than the $250,000 insured limit.
With interest rates expected to remain relatively high in 2023, replacing your traditional accounts with a high-yield option offers a no-stress way to start growing your savings — and your passive income — with very little risk.
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