When you receive a lump sum of money that is above and beyond your regular income, such as a bonus from work, a winning scratch-off ticket, or the tax refunds that many people anticipate this time of year, it can be easy to feel inclined to indulge. The best financial move, though, is frequently to set aside that cash for the future, ideally in an interest-bearing account.
High-yield savings accounts are here. Saving money in high-yield savings accounts is a terrific idea for many different things. In this article, we explain why your tax refund can be best invested in a high-yield savings account.
Check out your rates here if you’re thinking about opening a high-yield savings account.
There are five good reasons to deposit your tax refund in a high-yield savings account.
For the following reasons, think about pung your tax refund in a high-yield savings account:
Compared to a typical savings account, you will make more money.
Because they offer — you guessed it — higher yields than standard savings accounts, high-yield savings accounts got their
name. By how much more? Currently, regular savings accounts offer an average interest rate of about 0.24%. The rates for high-yield savings accounts, however, hover around 4%. As a result, if you’re looking for a place to keep your money, these accounts are a no-brainer.
Additionally, if you don’t already have a high-yield account, now is a great time to open one because savings account interest rates depend on the federal funds rate. Although high interest rates have many negative consequences, one benefit is that they increase the amount that can be earned from savings.
Find out how much you may be earning with a high-yield savings account by investigating current rates.
Create an emergency fund.
Experts advise keeping three to six months’ worth of expenses aside for emergencies. If you lose your job, this will pay for your daily expenses. It can also cover large, unforeseen bills like an unanticipated home repair or medical bill, sparing you from relying on credit like credit cards or personal loans, which end up costing you more in interest than you originally borrowed.
Your emergency fund will continue to grow in value if you keep it in a high-yield savings account until you need it, giving you extra money to use when a rainy day comes.
A short-term objective can be saved towards.
High-yield savings accounts are also a great way to save money for an immediate need, like a trip, a wedding, or a new automobile. Thanks to interest earnings, you’ll have more money to devote toward these objectives, and keeping the money set aside in an account separate from your checking account can help you resist the need to use it for other purposes.
Money will increase without risk.
Although investing in the stock market carries risk, you could potentially make a lot of money. It’s also possible to lose a lot of money quickly. Although playing the market might not be as exciting, a high-yield savings account is much safer.
Your interest earnings will decline if the federal funds rate falls, but you won’t lose any of the money you initially placed. In the worst-case situation, the FDIC will insure your money up to $250,000 per account per bank in the event that your bank collapses.
Examine the rates offered below to get your quest for a high-yield savings account started.
If you need the money, it is simple to get access to it.
In order to earn the highest money, you should keep your tax return in your high-yield savings account for as long as feasible. However, there are times when you need quick access to cash, such as during one of the emergencies for which you set up your emergency fund.
You can withdraw money from high-yield savings accounts without incurring penalties as long as you abide by any withdrawal restrictions because they are more liquid than other savings products like CDs.
The Botom Line
It might be exhilarating to get an unexpected windfall like a tax refund, and there is nothing stopping you from treating yourself a bit. Even so, think about investing the most of your refund in a high-yield savings account even if you do decide to treat yourself to a litle bit. Whether you need the money right away or want to utilize it for a goal you’re eager to achieve, it will earn more money and you’ll have something to rely on in the future.
Always shop around to obtain the best rates, just like with any other financial product.