This One Simple Move Earned Me Over $1,000 This Year

Receiving passive income is when you don't have to lift a finger and can still earn money. As someone who lived paycheck to paycheck for years and dangled over a proverbial cliff with my finances for most of my adult life, getting to watch my money earn money for me is a new experience.

But as I write this, I've earned $1,371.32 in passive income so far this year. What's my secret? I keep the money I'm saving to buy a house, pay my freelance taxes, and take vacations in a high-yield savings account.

What's a high-yield savings account?

You likely have some experience with a standard savings account -- these simple bank accounts are often the first ones you get as a kid or teenager. They're pretty straightforward: In exchange for funding the account (and often being limited to six or fewer convenient withdrawals per month), you earn a small amount of interest on your money. And I do mean small. I actually have two savings accounts -- one is with a big national bank and the other is with an online-only bank. My savings account at the national bank is primarily a way to provide overdraft protection for my main checking account, and it earns a meager 0.01% APY.

Meanwhile, I have the bulk of my savings (including the decent sum I've amassed to buy a house next year) in an online high-yield savings account that currently earns an APY of 4.25%. I have the date that my interest is paid to me every month marked in my calendar, and I actively look forward to it, because I get to put that bonus money toward whatever goal I want. The best high-yield savings accounts are overwhelmingly offered by online-only banks.

Online banks can pay you a higher rate on your savings because they have fewer overhead costs -- remember, they exist in cyberspace and don't have physical branch locations to maintain. Online banks also tend to come with excellent mobile banking apps and customer service, so they're worth considering if you want to take your banking activities into the 21st century.

It's the perfect time to open a high-yield savings account

We're still struggling with higher inflation (though thankfully, less so than in 2022). As of this writing, the most recent Consumer Price Index Summary report found that inflation stood at 3.7% in September. If you have cash saved that isn't earning an APY of at least this much, your cash is declining in value before your eyes. Yikes!

Thankfully, many high-yield savings accounts are earning well above this figure -- 4%, 5%, and sometimes even more. Rates are up for these accounts (my own savings account's APY has jumped several times in the last year) because of the actions being taken by the Federal Reserve to mitigate inflation. The Fed has raised the federal funds rate 11 times since last year. And while the Fed doesn't set savings account rates, banks have responded to the rate hikes by increasing APYs on savings accounts (and also increasing APRs on personal loans and credit cards). In short, it's an excellent time to have money in the bank.

Research from The Ascent found that only 31% of Americans have a savings account paying at least 4% APY. These high APYs won't last forever (they are variable, and when the Fed lowers rates, your bank will also lower your savings APY), so take advantage while you can. You might not have considered opening a new high-yield savings account, but I hope you're thinking about it now -- it's the perfect time to open one and let your money earn more money for you.