“How to Choose and Benefit from a High-Yield Savings Account”

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How Much Money to Put in a High-Yield Savings Account

A high-yield savings account (HYSA) is similar to a traditional savings account but offers a significantly higher interest rate. This makes HYSAs an excellent option for achieving short-term savings goals. The amount of money you should deposit in your high-yield savings account depends on your financial objectives and how you plan to use the funds.

Here’s what you need to know to determine the right savings amount for your financial goals and maximize the benefits of a high-yield savings account.

Emergency Fund: 3 to 6 Months of Living Expenses

Building an emergency fund with enough money to cover three to six months’ worth of necessary expenses is a common rule of thumb. This fund can help you pay for essential expenses like rent or mortgage, utilities, groceries, and medical costs in case of income loss or emergencies.

For example, if your average monthly expenses are $3,000, you should aim for an $18,000 emergency fund to cover six months of expenses. If your job prospects are strong or your partner’s income can sustain you both, a three-month emergency fund may be sufficient.

Home Down Payment: 20% of Home Price

Saving for a home down payment is a major financial goal for many. The amount you’ll need depends on the home’s price and the type of mortgage you plan to get. For a conventional mortgage, putting down at least 20% can save you on interest charges over the life of the loan.

If your goal is to save $100,000, you can achieve this by saving $2,778 each month for three years or $833 each month for ten years. Some loan programs allow for lower down payments, but you’ll need to pay mortgage insurance.

Vacation: Full Cost of Trip

High-yield savings accounts are also a great place to save for your next vacation. The average cost of a domestic vacation is $1,550 per person, while international trips average $2,300. Calculate your costs for transportation, lodging, food, and activities to determine your savings goal.

For example, if your estimated costs for a family vacation are $9,000 and you plan to travel in one year, you should save $750 per month.

Car Down Payment: 10% or 20% of the Car’s Purchase Price

It’s generally a good idea to put down at least 20% for a new car or 10% for a used car. This can protect you from depreciation and help you qualify for better loan terms. For a $30,000 vehicle, a 20% down payment would be $6,000. If you trade in your vehicle for $3,000, you’d need to save another $3,000.

What to Look for in a High-Yield Savings Account

Before choosing a high-yield savings account, compare options from different banks. Consider the following factors:

• Interest rate: Look for competitive rates, as the primary advantage of HYSAs is their higher annual percentage yields (APYs).
• Opening deposit: Some banks require a minimum deposit to open the account or to earn the maximum APY.
• Fees: Be aware of any funds transfer fees, excessive withdrawal fees, and monthly maintenance charges.
• Withdrawal restrictions: Find out how often you can withdraw cash and whether there are any charges for exceeding the limit.
• Deposits and withdrawals: Check if you can make withdrawals from an ATM or by transferring money to a checking account.
• Mobile access: Ensure the bank offers a mobile app for easy access and check if you can deposit checks through the app.

Alternatives to a High-Yield Savings Account

While high-yield savings accounts are great for emergency funds and short-term goals, they may not be the best choice for longer-term priorities. Consider these alternatives:

• Certificate of Deposit (CD): CDs offer higher interest rates but require you to lock in your money for a set term.
• Money Market Account: These accounts offer high yields and allow you to write checks and withdraw cash from ATMs.
• 401(k): A retirement investing plan through your employer that allows you to contribute monthly and may include employer matching.
• Individual Retirement Account (IRA): An IRA allows you to invest for retirement independently of your employer.

Don’t Forget About Your Credit

Maintaining strong credit is essential for securing better rates and lower monthly payments on loans. Consider checking your credit report and score to see where you stand and take steps to improve your credit as necessary.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you achieve your financial goals!

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