- While most savings accounts have an interest rate of about .01% today, high-yield savings accounts can earn 20 times more, with interest rates as high as 2%.
- After earning $80 in interest over four months, I couldn't imagine ever having a typical savings account again.
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When I was 16, I was ready to buy my first car. I had a savings account at Fifth Third Bank that my grandparents had started with $100 when I was little, and I planned to use it for my car purchase.
My grandparents wanted me to have a place to learn to save when I was young , and that I did. My mom would take me to the local branch, and I'd proudly tell the teller that I was saving for a Volkswagen Beetle. After making a deposit, my mom would talk about how much compound interest , or interest that grows based on both interest and principal,can grow money over the years. I couldn't wait to see how it would add up.
Imagine my astonishment when I discovered a .01% interest rate didn't add up to much.
I chose high-yield savings for my next goal and never looked back
Years later, I'm setting my sights on a different money goal: saving for a down payment for a home. This time, I'm saving differently I opened a high-yield savings account. These accounts can help savings earn 20 times more than a typical traditional savings account (and 200 times more than my .01% interest rate), with no extra effort or risk. It's basically the same as the savings account I had as a kid it's fee-free and free to open. The only difference is that it earns 2% in interest each year, visibly growing my balance.
I opened my account in August 2019, and have set up automated payments every month to make saving painless. My savings account has added about $80 in interest over the four months it has been open, and I did nothing more than initiate a transfer to earn that.
At the interest rate of .01%, the $100 my grandparents used to start that savings account would earn $0.16 in interest over 16 years. Had that same amount gone into a high-yield savings account at 2% for 16 years, that same $100 would have grown to $137.68.
A regular savings account just can't compete
That might not sound like much, but at the scale of the tens of thousands of dollars that a down payment requires, a general savings account can't compete. While I'll admit that it would be nice to have all of my accounts in one place, a really great mobile experience from the bank I use and an estimated $240 dollars each year make it an easy sacrifice.
Two percent interest is more on par with what I expected from all that high praise my mom gave interest all those years. Hopefully, these little monthly additions of interest payments will add up by the time I'm ready to buy. I look forward to checking my account each month to see what I earned.
I never did get that Volkswagen Beetle. But, I'm pretty certain that I'll be able to handle my future home purchase . This time around, I certainly won't make the mistake of missing out on interest again.
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