Building long-term wealth requires saving and investing. While it is important to put some money in investments that have potential to generate high returns, keeping some cash on hand for emergencies and short-term needs makes sense.
That cash does not have to sit idly in a low-interest traditional savings account. A high-yield savings account (HYSA) lets money grow while remaining easily accessible.
What a ‘high-yield lazy account’ actually is
HYSAs offer higher annual percentage yields (APYs) than traditional savings accounts. Many are currently offering APYs around 4%. They are protected like traditional savings accounts for up to $250,000 per depositor and per bank for each ownership category, as long as the bank or credit union is insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA). They often come with low or no fees and are easy to maintain—hence the “lazy” nickname.
You can open a HYSA and enable automatic transfers from your checking account so you do not even have to think about obtaining that extra yield.
Why it beats what many savers are doing
HYSAs generally do not come with added risks compared to traditional savings accounts, so there is essentially no downside to storing money in them and getting a higher APY.
Let us compare storing $10,000 in a traditional savings account offering 0.38% APY and in a HYSA offering 4%. In the traditional savings account, you would generate just $38 of interest for the year. But in the HYSA, you would get $400.
The only challenge with these accounts can be finding them, since your bank may not offer a HYSA. You are more likely to find them with online banks that do not have to pay to run brick-and-mortar branches.
How to set it up without overthinking it
When looking for a HYSA, narrow focus on accounts with no monthly fees, a competitive APY, FDIC or NCUA insurance and no restrictive balance requirements. Once you set up the account, link it to your checking account so you can enable automatic transfers.
Although a high-yield savings account is a useful resource, it does not replace investing in long-term assets like stocks. Keep in mind that HYSAs have variable interest rates, so you cannot rely on the posted APY forever. Banks can lower APYs at any time based on various factors, such as Federal Reserve rate changes.