Are You Saving Enough Money? These High-Yield Accounts Could Help You Get There

There's no universal rule of thumb when it comes to how much you should have in savings accounts. Most financial planners suggest an emergency fund equal to six months' worth of expenses, but there's also non-emergency savings to consider as well.

However, the average American doesn't have nearly this much in emergency savings. About half of American adults couldn't cover a $1,000 expense without borrowing the money or selling something, according to Federal Reserve data. But now could be a great time to get back on track if your savings account balances aren't quite where they should be. And it's easier than it has been in decades to put your savings to work for you.

Savings accounts

If you're a customer at a branch-based banking institution, the term "savings account" might cause visions of 0.01% interest rates to appear in your mind.

However, there are some excellent savings accounts offered by online-based banks. And because of the rising interest rate environment we're in, they pay extremely attractive annual percentage yields (APYs). In fact, deposits have declined at most of the big banks over the past year, and this is the big reason why.

Of course, savings accounts interest rates will fluctuate over time. But as of Oct. 10, 2023, there are some high-yield savings accounts offered by FDIC-insured, reputable financial institutions to online customers that have APYs (annual percentage yields) of more than 5%. If you have $10,000 in savings, it's entirely possible to set yourself up to get $500 in extra money over the next year just by putting it in the right savings account, and with virtually no risk to you.

CDs

Savings accounts are a great tool if you need access to your money regularly. But if you're reasonably certain you won't need to touch your money for a while, high-yield CDs can be a great place to put your money to work.

It wasn't long ago that it was difficult to find a CD yield greater than 2% -- even from the top online banks. But that's changed. There are some excellent 1-year CDs that offer APYs in excess of 5.5% as of this writing, and you can find a 5-year CD with a yield of 4.5% or more, so even if interest rates plunge, you're guaranteed a high yield for the entire term.

I bonds

I bonds (officially called Series I Savings Bonds) are a special type of savings bond offered by the United States Treasury that are specifically designed to protect your money from inflation.

Here's how it works: You buy an I bond from the Treasury online or by mail. You're given an initial yield, which you're guaranteed for the first six months, and it consists of two parts -- a fixed rate that will stay the same for as long as you hold the bond, and a variable component based on inflation. I bonds purchased through the end of October have a 0.9% fixed rate and a 3.4% inflation adjustment, for a total APY of 4.3% for the first six months. But if inflation spikes higher, this APY can certainly grow. In fact, I bonds had initial yields of 9.62% during the 2022 inflation surge.

Which is best for you?

Like most financial products, there isn't a one-size-fits-all answer here. If you might need access to your money at any time, a CD or I bond is clearly not the best option, just to name one example. However, the point is that there are more high-yield places to put your money to work than there have been in decades, so if you aren't saving as much as you should, now is a great time to prioritize it.