Unexpected Benefits of High-Yield Savings Accounts for College-Bound Teens

Eighteen and broke. When you've got little to save, it makes sense to knock "opening a savings account" way down the priority list. But there are unexpected benefits to opening high-yield savings accounts early, even when you're a college-bound teen with $0 in the bank.

A high-yield savings account (HYSA) offers better rates than typical savings accounts. It's great for savers with lots of money in the bank.

But for teenagers, the goal isn't saving up gobs and gobs of cash. (Not yet, anyway.) It's about long-term benefits: making it easier to save in college, making the best bank your first bank, and getting ahead of the learning curve.

HYSAs make it easier to save in college

High-yield savings accounts help you organize expenses and avoid fees.

Many students stick to college checking accounts. Problem is, that's only half of the banking puzzle. Checking accounts make it easy to spend, but they don't make it easy to save. HYSAs do. For example, I keep my tax money in my savings account so I'm not tempted to spend it. It works.

HYSAs sometimes help you avoid fees. Many of the highest-yielding accounts are offered by online banks, which charge fewer fees because they're cheaper to operate. In college, my brick-and-mortar bank charged me minimum balance fees for underfunding my savings account.

Skip the fees by opening a HYSA that doesn't charge minimum balance fees. Some do, but many don't. Also keep an eye out for maintenance fees, which can eat into college savings.

HYSAs graduate with students

HYSAs become even more relevant when students graduate.

A high-yield savings account offers higher-than-average interest rates. When you graduate college and begin saving in earnest, a good APY matters. It's the difference between earning $5 and $50 per year on a $1,000 deposit.

That brick-and-mortar bank I mentioned earlier, the one I used in college? I grew out of it. Fast. The fees were ridiculous, and it ended up costing me hundreds of dollars. Plus, my APY was abysmal -- less than 1%.

I've switched to banking apps that pay me 10 times as much as I earned back then. Teens who choose a HYSA from the start can avoid the hassle of switching banks later on.

I wish I'd started with an online bank instead, one that offered a competitive HYSA. I'd have saved the time and effort I spent switching over all my bills and integrations to another bank. (I actually ended up switching banks twice, but you can do better than I did!)

HYSAs help students learn finance fast

HYSAs help college-bound teens learn about finance with little effort, putting them ahead of chumps like me, a guy who didn't know what an APY was until years after I graduated.

Compound interest has to be seen to be believed. It's one thing to hear that the more money you have, the faster it grows. It's another to watch your savings account grow. Get curious: plug your rate into a compound-interest calculator over 40 years, and feel your jaw hit the floor.

Long-term savings habits take time to build. Amounts are less important than long-term results. A college-bound teen who deposits $50 per month into a savings account with a 4% interest rate for four years would graduate with about $2,600 banked. That's over twice the typical American's savings account balance. It may be enough to make a good habit stick around.

Should teens open HYSAs?

High-yield savings accounts aren't the cure-all for financial woes. It won't kill you to not have one, and cash-strapped teens won't make much money on deposits anyway. However, opening a HYSA early could make life a bit easier for college students.