Many people have become discouraged because of the historically low interest rates paid on savings accounts. You’ll even find that a high yield savings account averages less than 2% interest as the economy continues to be hard hit.
Some may ask, in light of the low interest rates, whether it’s even worth it to put money into a high yield savings account. The answer is, simply enough: yes. If you are putting your money into a savings account with the intention of actually saving it, that is.
A high yield savings account pays higher interest, but generally come with a few restrictions. Some banks require a large initial deposit and others limit the number of withdrawals you are allowed to make every month. But for those who intend to save money long term, they are considerably better than the typical passbook savings account.
As of this writing, the national average yield on a savings account is 0.21%. High yield savings accounts average around 1.24%. Anyone who lived through the ‘70s, ‘80s, or even the ‘90s will no doubt think that either number is terribly low. So, what difference does it really make to put money into a high yield savings account? There’s only a little more than 1% difference in the interest rates, right?
If you do the math, 1.24% is roughly six times the interest rate that 0.21% is. And while that ratio is unlikely to remain if and when interest rates go up, you can expect that high yield accounts will always be somewhat better than passbook savings accounts.
Even if we assume that interest rates stay as they are infinitely (and let’s all hope they don’t), that modest percentage point of difference adds up to a huge difference over the years. Let’s assume you save $100 per month for the next 20 years. At 0.21% interest, you will end up with $25,787.72; the same amount of money saved at 1.24% interest will net you $28,919.90. We don’t know about you, but we figure that $3,268 (and change) is a fairly sizable reason to consider putting your money someplace where you can earn that extra percentage point of interest.
Of course, there are other investment options with higher return potential. But if you desire the security of a federally insured savings account, you’re still much better off putting your money into a high yield account than into a regular savings account.