7 Misconceptions That Are Costing Americans Millions of Dollars

Having your money work harder for you will move you closer to your long-term financial goals. You can put money into the stock market to potentially generate higher returns, but some people prefer to stay defensive and keep their cash in a checking account.

However, you can earn a lot more by putting your extra cash into a savings account. These accounts have virtually zero risk since they are insured by the FDIC. Furthermore, the balance in your savings account can’t lose value the way a stock can.

Even with the advantages of a high-yield savings account, some people still keep their money in low-yield accounts. Research from Santander Bank revealed some of the misconceptions and reasons that are costing Americans a lot of money.

The Desire to Have Immediate Access to Savings

Many Americans want immediate access to their savings accounts. That’s a good goal, but it doesn’t mean sacrificing high yields. Some savings accounts offer 4.00% APY and still let you access your funds whenever you need them. 

These high-yield accounts typically come from online banks. Those financial institutions can offer higher rates since they have less overhead than traditional banks.

Interest Rates Aren’t High Enough to Justify the Effort

It takes time to compare bank accounts and transfer money. You can spend that time doing other things, so some people don’t think it’s worth the effort.

However, a high-yield savings account represents free money. Once you’re set up, it doesn’t take any additional effort to get a 0.50% APY or a 4.00% APY. The money arrives in your bank account all the same, and the compounding can add up significantly over the course of a decade.

Not Familiar with High-Yield Savings Accounts

Many people only do business with 1-2 banks. They stick with what’s familiar, but doing so can hold them back from higher interest payments. It’s good to research several banks and look at online banks to get the best APY.

The Current Bank Hasn’t Raised Its APY

Many financial institutions keep their APYs firm instead of raising them. Keeping these rates steady prevents people from collecting additional interest unless they put more money into their accounts. 

However, you can just as easily move your funds to a bank that has a better APY. This approach is similar to job hopping, where you go from one job to another to boost your income.

Not Wanting to Commit to a 1-Year CD

CDs are good financial products that let you lock in a rate for a set amount of time. You can choose a term that’s as short as a month or as long as 10 years. Most people don’t want to lock their funds into a long-term CD, and that causes people to hesitate about high-yield savings accounts.

However, there are two things to keep in mind. First, some CDs have no penalty fees if you want to withdraw your funds early. You don’t take any risk and still collect interest. The second thing to know is that some high-yield savings accounts have comparable APYs as long-term CDs. You don’t have to lock up your money for an extended period of time to receive a competitive APY.

No Time to Do So

A lack of time can prevent anyone from achieving a meaningful goal. The entire process of finding a competitive high-yield savings account can take less than one day, and if you think about the compound returns from a risk-free rate, it can incentivize you to act. You only have to do the research once, and then you continue to collect interest.

Not Aware Savings Rates Have Gone Up

CDs and high-yield savings accounts weren’t as attractive before the pandemic. However, the Federal Reserve has hiked interest rates several times to combat inflation. Those rate hikes have resulted in more compelling APYs for a variety of financial products, including high-yield savings accounts.