A high-yield savings account should be a tool in every family’s financial plan, especially for short- to medium-term goals. But often, it can be hard to decide what to keep in your day-to-day accounts, what to invest, and what belongs in your high-yield savings accounts.
So, let’s break it down.
This post is sponsored by CIT Bank1, a division of First Citizens Bank (Member FDIC), and a provider of Savings Connect high-yield savings accounts currently offering a 1.65% APY2. Click here to open an account today!
As always, my opinions and experiences are my own and we never recommend products we don’t love. For more information, see our full disclosures.
Any time you have money you don’t need to use right away, you want that money working for you. But not every dollar saved should be invested.
The stock and bond markets are volatile, with values moving up and down unpredictably through market cycles. While long-term we expect healthy returns, you don’t want to risk money you might need in the short- to medium-term. A downturn in the week you want to withdraw the money could mean taking losses.
For those shorter-term goals, a high-yield savings account offers much better interest rates than your standard savings account (which hovers right around 0.01% – don’t spend it all in one place!). For example, CIT Bank’s Savings Connect account currently pays a 1.90% interest rate, with no monthly fees, and you can open the account with just $100.
Those higher rates can help offset inflation, separate your savings from your day-to-day accounts to keep that money earmarked for your goals, and remain accessible when you need it.
Wondering what types of goals need a high-yield savings account? Here are the 5 most common uses.
5 Savings Goals to Put in Your High-Yield Savings Account
1 - Emergency Fund
A healthy emergency fund can significantly reduce financial stress and ensure that your family can cover unexpected expenses and events. You need access to this money quickly when you need it, but you’re unlikely to be accessing this cash on a daily or even weekly basis.
A high-yield savings account will allow that money to grow without putting it at the risk of stock market volatility. Or at the risk of you tapping your emergency fund for a Target splurge, which might happen if that cash sits in your regular checking account!
2 - Home Downpayment Savings
Want to buy a house in the next 3 to 5 years? Your downpayment savings should absolutely be in a high-yield savings account, like CIT Bank’s Savings Connect.
Where to save a downpayment is one of the most common questions we get. When your goal is still a couple of years out, it might seem smart to invest that money and take advantage of the potential returns of the market. However, the average market cycle is 7 years so even a 3 to 5 year timeline isn’t enough to smooth a potential downturn.
Alternatively, a CD – certificate of deposit – locks your money up for a fixed amount of time. If you find the perfect house and want to move up your timeline, you’ll pay fees for withdrawing your money early.
A high-yield savings account allows you a better return than a checking or standard savings account, while still giving you the security and flexibility you need during your home buying process.
3 - Vacation Funds
Want to take a special trip? Whether it’s your annual vacation or a big trip that’s a few years away, keeping your vacation savings in a high-yield savings account will keep it separate from your other funds, make it easy to track your progress, and offer a better return.
I’m a big fan of printable savings trackers for visual reminders of how you’re working towards your goals. Every time you deposit money in your account, color in a bit more of your chart and celebrate the relaxation headed your way!
4 - Home Renovation Savings
Looking forward to gutting your bathroom or putting in a fancy kitchen? It’s always fun to make your home exactly what you need. But home renovations are expensive and should be planned for.
So, whether your goal is 6 months or two-years out, start tucking money away in a high-yield savings account. Then, you can afford the project without stress!
5 - Long-Term Sinking Funds
The large expenses that happen to every family over long periods of time don’t have to be stressful. When your car gives up on you or you need a new hot water heater, you don’t have to panic.
Sinking funds are created by setting aside smaller amounts of money each month to prepare for big expenses in the future. Setting these up in a high-yield savings account can guarantee you have the money you need, when you need it.
Consider how far out big expenses are for you. How old is your car? Your computer? Your roof? Estimate the cost of those expenses and divide it by the number of months until you think you’ll need to make them.
Start setting aside those funds in a high-yield savings account, even if you can’t yet put away the full amount. The higher interest rate can help that money work for you and give you more resources when those big expenses pop up.
How to Find a Great High-Yield Savings Account
Ready to open a high-yield savings account to start saving for your goals? Here’s what you want to look for:
CIT Bank’s Savings Connect accounts, currently paying a 1.65% APY, meet all of these requirements and more, with an eChecking account associated with your savings account to make your savings available more quickly when you need it, through Zelle3, a debit card with no ATM fees4, and Bill Pay.
1. First-Citizens Bank & Trust Company and its CIT Bank and OneWest Bank divisions are the same FDIC-Insured Institution. Deposits held under each name are not separately insured but are combined to determine whether a depositor has exceeded the $250,000 federal insurance deposit limit, per depositor for each ownership category. For purposes of calculating aggregate deposits, you should include deposits held in First-Citizens Bank & Trust Company, OneWest Bank and CIT Bank.
2. APY — Annual Percentage Yield is accurate as of August 16, 2022. Interest Rates for the Savings Connect Account are variable and may change at any time without notice. The minimum to open a Savings Connect account is $100. Fees could reduce earnings on the account. A Qualifying eChecking account must be opened concurrently with the Savings Connect account and the ownership of both accounts must be identical. The minimum to open an eChecking account is $100. Both accounts must be funded within 30 days of account opening.
3. Zelle and the Zelle related marks are wholly owned by Early Warning Services, LLC and are used herein under license.
4. CIT Bank does not charge ATM fees, however other banks may. As part of Savings Connect you can get up to $30 in other U.S. bank’s ATM fees reimbursed per month directly into your eChecking account.