: What’s a HYSA and is it safe to use one ?
The basic gist is banks need cash deposits, both so they can take money and invest it for profit and give out loans, but also because they need to keep some cash in reserves by law to do these things.
So it comes and goes, but banks sometimes really, really, really want people to deposit tons of cash, quickly. So they offer very high interest rates on High Yield Savings Accounts to attract those depositors.
There isn’t really any safety concerns, they are bank accounts and very secure as far in places to put your money is concerned. If you are in the US anything under $250,000 is insured by the US Government so you’re not at risk of losing your money should the bank default.
The biggest risk is that the interest rates are extremely volatile as they are based on how much the bank needs cash at that exact moment. Don’t expect the rate they advertise to last a full year, let alone a full month. For example during the days COVID when everyone was getting checks from the Government and putting them into banks, the banks didn’t want cash any more and the rates plummeted to essentially nothing.
When you deposit money into your savings account, the bank loans that money to other people and charges them interest. They might charge the person (or business) borrowing the money 5% interest for example.
Many banks only pay you 0.01% interest on that deposited money and they keep the remaining 4.99% for themselves. With a high yield savings account, the bank pays you a higher percentage on your money, so maybe 2%. Most of the banks that do this have a large portion of their operations online with limited physical locations, which reduces their overhead and allows them to still make tons of money.
High yield savings accounts have been around for 20+ years. They are safe. They are FDIC insured just like your checking account and your low paying savings account.
Discover, Ally, Capital One 360, Marcus are some of the most popular high yield savings accounts, but there are many others.
For some general info, the rate paid by the bank varies depending on interest rates set by the government. Those are adjusted all the time. Using my own account as an example, it was paying maybe 2% five years ago, 0.5% one year ago, and 3.8% right now. The government tries to influence how/when you spend and save by adjusting these interest rates. When interest rates are low, you earn less on the money you have tucked away in savings, and it’s less expensive overall to finance big purchases like houses and cars. When interest rates are high, you earn more on the money you have tucked away in the bank and it costs more to finance big purchases. Right now, the government wants you to save more and spend less so the interest rates continue to creep up. When they eventually go back down, that high yield savings account you open today at 4% interest will drop accordingly and might only pay 3% or even 0.5% depending on how far the rates drop. They will always pay better than the 0.01% offered by the banking giants like Chase.
A high yield savings account. It’s just a savings account that offers higher than normal interest rates compared to other banks (which can be extremely low like 0.01%).
Savings accounts are safe to use in general. Just make sure it’s insured.