I’m extremely financial illiterate and unfortunately don’t have many people who can educate me about it so I’m trying to learn on my own. Today I’ve heard about HYSA for the first time.
So what exaclty is it and how does having one benefit you? Are there any catches or downsides?
From what I read, it sounds like a type of banking account where you basically deposit your extra cash into, and the bank pays you a higher percentage of interest on the cash you deposited with them than you would with a regular savings account?
So for example, if I had $10,000 in a HYSA and their interest rate is 4.5%, I could earn $450 in a year from them compared to if I had $10,000 in a regular savings account with an interest rate of 0.01%, where I would only earn $1 in a year?
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Yeah. You pretty much nailed it.
High Yield Savings accounts allow banks to have lots of cash in hand to invest themselves into the market. By giving you a 4% rate, they are hoping for a 7% rate on that same money. This is how they get the money needed to also do loans and other investments at even higher interest rates.
The primary catch is they usually limit your withdrawals heavily. Whether you get one a month or limit the amount you can withdraw, that’s the primary drawback.
In comparing them with a CD, they are very similar, except the savings account is always just available for use. It usually has a lower rate compared to being locked in a CD for 18 months.
You answered your own question, your assumptions are correct.
I always stayed away from HYSA’s because I’ve heard horror stories of people trying to withdrawal their money. The overwhelming majority of them are offered by banks with little to zero brand recognition, and they look for any excuse from the fine print possible to restrict withdrawals. Then Apple came along with their HYSA partnered with Goldman Sachs, and I dove in. It’s pretty nice getting 4.15% return with zero risk. The only “catch” is 20K weekly withdrawal limits. I’m not a name brand only guy in general, but I certainly am when it comes to all of my liquid cash.
HYSAs aren’t a classification, they are a normal savings account that are given a fancy name. Like how “underwater ceramics technician” is a dishwasher.
Bank of America and Chase start out at only 0.01%. Your local credit union may be from 0.25%-1% (though I’ve seen some at 0.01%). I have Capital One with 4.3% (so I earn 430x more interest, pre-tax, than a Bank of America savings account).
Then you have money market funds (not money market accounts) through brokerages. I have >$20k sitting in Fidelity’s SPAXX currently at 4.98% (I earned nearly $100 this past month). They aren’t technically savings accounts though so the insurance is different.
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