High-yield Savings Accounts Are Still Ideal For Emergency Saving Despite Interest Rates Drop

In Education

Over the past high-yield savings accounts have been among the best places where one can place their money. The accounts offered rates of more than 1.5% APY with some having APY of over 2%.

However, in recent months that has not been the case as most of the high-yield savings accounts are not offering the impressive APY, they have been offering. This has been depressing for savers. With the high-yield accounts losing the allure of higher interest rates savers are wondering whether it is worth having their money in the accounts.

Saving interest rates were low in 2020

In the wake of the pandemic, interest rates dropped in 2020 and in March the Fed announced an emergence rate cut from 1.0% to 0.25%. Banks also followed suit by slashing interest rates.  As a result, the impressive high-interest rates for high yield savings accounts dropped from around 2.2% to below 1%.

However, that should not discourage you from keeping money in the high-yield savings account. This is because once the Fed increases the federal funds rate, the APY will increase. But that might not happen overnight and it could tales weeks even months before banks increase their APYs.

High-yield savings accounts ideal for emergency savings

Despite the drop in APY, high-yield savings accounts could be a good place to keep emergency savings or money that you will use in a couple of years. Although you won’t earn interest rates as before, they still offer higher rates compared to traditional savings accounts. Most importantly the FDIC insures the accounts so if you want your money you don’t have a problem accessing it immediately.

Another reason you should keep your money in high-yield savings accounts is the possibility of rates rebounding in the future. And despite the rates for high-yield savings account falling there are still 10 times more relative to traditional savings accounts. Interestingly the rates may be lower but the difference between the savings accounts is surprising. Therefore keeping our money in a high-yield savings account could be a reasonable decision even though the rates have fallen. 

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