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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In: 1
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.
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