What's the difference between a Savings account and HYSA?

Not personalized financial advice - your money, your choice.

Save, save, save. 

I’ve heard this from many family members and initially interpreted it as ‘Put money into a savings account.’ 

Basically ‘save’ = ‘savings account’.

It wasn’t until I was almost 20 that I understood what they actually meant was, yes, put money into savings accounts, but REALLY what they meant was invest in broad-market index funds for retirement. 

This doesn’t mean that a savings account isn’t still important, however.

Until a few years ago, I thought the only option for a savings account was the one at the bank where I have my checking account. That savings account earns something like 0.01% interest each year.

If I put $100 into that account, I get a cent at the end of the year. 

The other, better option, is to use a High Yield Savings Account (HYSA). These are often accounts at online banks with few, if any, physical locations and very few employees to keep costs low (I use Marcus by Goldman Sachs).

Walk into savings with some peace of mind

They have been returning 2-5% in recent years due to higher interest rates. So how do they do this? Banks with HYSAs make money by taking the deposits and lending them out. 

For example, they could take money from depositors and lend it out for mortgages at 7-8%, pass 4% back to the depositor, and pocket 3-4%.

They can make a lot of money doing this at scale, and the depositor gets to make far more than if they use a savings account at a traditional bank.

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