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Not having your savings in the right place can cost you. Discover the huge savings mistake many Americans make and how to fix it.
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A healthy savings account balance is an important part of your financial security. You’ll need to have money set aside to cover future expenses and emergencies. While most Americans have at least some savings, the majority are also making a serious mistake that costs them money.
Over two-thirds of Americans are missing out on higher interest rates
Only 31% of Americans have a savings account with an interest rate of at least 4%, according to a savings study by The Motley Fool Ascent. That leaves 69% who use accounts earning less than that.
This can cost you a significant amount of money over time. Many of the best high-yield savings accounts earn rates of over 4% right now. However, the national average is just 0.42%. Some of those big banks that so many people use are offering even less than that — we’re talking as low as 0.01%.
To put those numbers in perspective, let’s assume you have $5,000 in savings. Here’s approximately how much you’d earn in yearly interest depending on the type of account you have:
With a savings account from a big bank offering 0.01%, you earn $0.50.With a savings account offering the national average of 0.42%, you earn $21.With a high-yield savings account offering 4.30%, you earn $215.
It’s a difference between pocket change and enough money to go out to dinner, see a few movies (while hitting the concession stand), or add more to your savings.
Why people don’t use high-yield savings accounts
Choosing between an account that offers 4% interest and an account that offers 0.4% seems like an easy decision. So, why do most go with bank accounts that pay them less?
Respondents were asked what was keeping them from opening a savings account with a higher interest rate. There were a few common explanations. Here’s what they are and why these reasons aren’t worth missing out:
38% didn’t know that savings accounts with interest rates about 4% are available. High-yield accounts are mainly available through online banks, so it makes sense that not everybody knows about them.35% said they don’t have enough savings for a higher interest rate to matter to them. You can still open a savings account that earns you more now — it certainly doesn’t hurt. Plus, getting a high APY can be good motivation to save.13% said it would take too much effort to open an account and transfer money to it. The process is actually faster than you might think. You can open a new savings account online in 15 to 20 minutes.9% said they don’t trust the banks offering savings accounts with higher interest rates. Even though they’re online banks, these are legitimate financial institutions. You’ll also find that most of them are FDIC insured, meaning accounts are covered for up to $250,000 in the event of a bank failure.
The remaining 5% had other, unspecified reasons.
How to open a high-yield savings account
If you don’t have a high-yield savings account yet, opening one is a great money move. Earning more interest is something that can pay off, whether you’re starting with $100, $1,000, or $25,000 in savings.
It’s also not a complicated or lengthy process. Here’s how to do it online:
Find a savings account you like and choose the “Open Account” option.Fill out the form with the required information, including your name, date of birth, and Social Security number.Submit the application.
Once your account is open, you can transfer over funds using the account number and routing number.
Not every financial improvement needs to be difficult. In fact, many of the best ones are simple changes. Switching to a high-yield savings account is something that anyone can benefit from, but many people still haven’t done yet.
These savings accounts are FDIC insured and could earn you 12x your bank
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 12x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2023.
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