5 Ways Your Life Gets Better When You Open a High-Yield Savings Account

This is a really good problem to have, but it's still a problem: Sometimes if you have extra cash, people can feel indecisive about what to do with it. Where should you keep your extra cash? Should you open a CD, buy stocks, or put it in a retirement savings account like an IRA?

All of these questions can feel paralyzing, which can lead people to make one big mistake: leaving their cash in a zero-interest bank account.

Instead of earning no money on your cash (and actually losing purchasing power to inflation), one simple move that you can make anytime is to put your extra money into a high-yield savings account. It's never too late to start earning interest on your cash.

Let's look at a few reasons why opening one of the best savings accounts can improve your life.

1. Your money starts making money

When you put your extra cash into a high-yield savings account, you will immediately start earning interest. Depending on the compounding schedule, you might see interest credited to your account as soon as one month after opening it. It feels inspiring and empowering to see that number in your bank account actually get bigger, with no extra effort required from you.

People work hard for their money, and you deserve to see your cash work harder for you. Don't settle for a zero-interest checking account or near-zero interest savings account. The best savings accounts (as of April 24, 2024) are paying 5% APY or higher.

2. No more cognitive load and mental burden

"Analysis paralysis" can be one of the biggest hassles of managing your personal finances. Trying to decide what to do with your money can be exhausting -- should I pay off this debt faster, should I save more for retirement, how can I improve my budgeting?

Sometimes people end up making a bad decision (or no decision, which can also be bad) just because they're tired of thinking about the decision. This mental fatigue is also known as "cognitive load." When people have to juggle too many details and decisions, they sometimes just procrastinate, shut down, and give up.

Opening a high-yield savings account can be a big relief, because it's a proactive decision and it takes one more thing off of your personal finance to-do list. Instead of worrying about "where should I put my cash, what should I do?" -- you decided, it's done, congrats!

3. You still have flexible access to your cash

One reason I'm not a big fan of CDs is that they require you to lock up your money. You have to commit your cash to the CD for a certain period -- and if you have to pull your money out early, you'll owe an early withdrawal penalty.

Savings accounts don't put you in this predicament. With a savings account, you can still earn a high APY (sometimes as good as or better than the best CD rates), and you have flexible access to your money. If you put money into a savings account today, and your situation changes in two months and you need to spend it, you're allowed to do that.

4. You can gain motivation to save more

Some people might discover that, once they've opened a high-yield savings account, they start to feel more energized and focused on saving money. Seeing the numbers get bigger each month can inspire you to keep saving.

Now that you have a dedicated savings account that's earning a high APY, you can keep up the momentum! Saving might suddenly feel more real, more possible, more trackable, and more doable now, compared to the days when all your cash was just piling up in a checking account.

5. No more missing out on "free money"

Imagine that your bank said to you: "We're going to take 5% of your paycheck this year. That 5% now belongs to us." You'd be furious, right? You'd close your accounts and take your money to another bank or credit union.

So why do so many people put up with banks that don't pay high interest rates on savings? It's not exactly the same as "losing" money from every paycheck, but if your money is in a low-interest bank account, your bank is causing you to miss out on free money.

Bottom line

Opening a high-yield savings account (or one of the best money market accounts) doesn't just improve your personal finances -- it improves your life. By no longer having to worry about indecision or missing out on free money, you can start actually gaining extra cash each month. Earning a bigger yield on your savings can also give you new motivation to improve your budgeting and find more money to sock away in the bank.