When to save money in a high-yield savings account

I don’t know about you, but I like to reward myself for saving money toward specific goals. No, not by spending it — by putting it in a place where my money gains value, or at the very least doesn’t lose value, over time.

Because I also want my money to be easy to access — and more secure than in my sock drawer — I use a high-yield savings account for most of my non-retirement savings. These accounts offer interest rates up to 200 times higher than a checking account or traditional savings account, which means money in a high-yield savings account is, minimally, keeping up with inflation.

Dozens of banks offer high-yield savings accounts with varying annual percentage rates (APY) for different balance amounts, some as high as 2.3%. That means an account with $10,000 could turn into $10,230 in 12 months, if left untouched. With consistent contributions, it would earn even more.

Most financial planners recommend storing money for short-term goals in high-yield savings accounts because there’s zero risk of losing money and it’s easily accessible. Here are a few goals you may be better off saving for in a high-yield account than anywhere else:

1. Emergency fund

You should be able to access your emergency fund in a pinch. Whether your car breaks down, you get laid off, or Fido makes an unexpected trip to the vet, a high-yield savings account is a good choice for keeping money within arm’s reach.

Most high-yield savings accounts allow up to six withdrawals per month, just like a regular savings account, but higher interest rates will help your money continue growing until the inevitable emergency arises.

2. Down payment fund

The stock market has the potential to earn you the biggest returns on your money, but it’s never guaranteed. A loss can take years to correct itself and you don’t want the money you’ve been squirreling away for one of the biggest purchases of your life to be gone in an instant.

“Steer away from holding your money in something that would not be available when you may need it,” Molly Stanifer, a certified financial planner and financial adviser with Old Peak Finance, told Business Insider. “It’s better to give up expected investment return to have the money available when you want to buy your house than to miss out because you invested too aggressively, or your money is not liquid.”

If you’re planning to buy a home within two years, try directing your savings into a high-yield savings account, perhaps at a different bank than your checking account. It’ll make it easier to compartmentalize your goals — a budgeting strategy financial planners call “bucketing.”

3. Travel fund

Most of us don’t plan for travel more than several months to a year in advance. Whether it’s a soul-searching trip through Europe or a spontaneous weekend getaway, travel is typically a short-term need. A high-yield savings account dedicated to travel — that’s earning interest, to boot — can be there when you need it.

4. Wedding fund

Saving for a wedding is another reason to use the “bucketing” method. If you’re planning a long engagement and know the wedding will cost a pretty penny, consider storing the cash in a specific and dedicated savings account that you can pull from sporadically to buy the dress, or pay the photographer, florist, and caterer.

5. Fun money

If you really want to reward yourself, consider putting your “just for fun” money in a high-yield savings account. It’s separate from your checking account, so you don’t run the risk of spending money that’s supposed to be for rent and bills on a last-minute festival ticket. Plus, the withdrawal limit can act like a safety valve against your own temptations to spend.

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