Money Management

Keeping all your extra cash in a checking account can be a costly mistake. Learn why a high-yield savings account (HYSA) could be a better option. [[{“value”:”

There was a time when I, a financial writer, kept my savings in my checking account. I know, I know. It was not ideal.

But when I first started my freelance-based business, there was a lot of money fear that came along with it. So I tended to hoard my money in my checking account so that I wouldn’t be caught off guard when a bill auto-deducted money from my account.

But as my business stabilized, I began to see how much I was missing out on by not having at least some of my extra cash in a high-yield savings account (HYSA). Here are three reasons why I made the switch.

1. I could earn an APY bonus

Banks sometimes offer bonuses, including cash and temporary interest rate hikes, to lure in new customers. I wanted to take advantage of that, especially in a high-rate environment that accompanied a time of high inflation.

So I chose a HYSA that offered a three-month period with a higher interest rate than that institution’s current rate. That meant I was earning 5.50% APY on my savings instead of 5.00%, at least temporarily.

A bank bonus like this is probably not going to be a game-changer for your overall finances. But the more you can save and keep saved, the more interest you stand to earn. And if you have the choice to earn more, it’s worth taking it.

Interested in watching your saved cash grow with a higher interest rate? Check out our top-ranking HYSAs for 2024.

2. My account offered higher returns than my old savings account

Even beyond any APY bonus, HYSAs generally have significantly higher APYs than traditional savings accounts. In fact, while the national average savings account rate is at 0.46%, HYSAs are currently offering rates ranging from 4.50% to 5.30%.

Let’s put that into perspective: If I had a $5,000 balance at the average traditional savings account rate, I’d have earned $23.05 in interest by the end of the year, assuming I don’t contribute to that account at all. But with a 5.00% APY, I’d have earned $256.34 in interest.

As inflation continues to eat into the value of a dollar, staying ahead of that wave of rising prices is even more important. This is especially true if you’re working on creating (or rebuilding) an emergency fund, which is generally meant to be able to cover three to six months’ worth of necessary expenses.

3. It didn’t come with many requirements

Depending on the savings account (HYSA or traditional), you may have to agree to meet certain terms to access these accounts or their APYs. For example, some HYSAs require a minimum balance to get that higher rate, or others may simply have a minimum balance requirement to keep the account open. And some may charge a monthly fee in some circumstances.

I chose an account that didn’t have these requirements because I was focused on building up my balance from scratch and wanted to maximize my growth. I had just come off a challenging time in my life that meant a lot of unforeseen healthcare costs, so my extra cash had dwindled.

Choosing a fee-free, low-maintenance HYSA provides the flexibility I need to ensure that I’m still getting the returns I want without causing unnecessary stress about keeping up with various requirements.

Keeping a buffer in your checking account can be helpful if you have a variable income and want to avoid fees and financial stress. But beyond that, keeping extra funds in a high-yield savings account is a lucrative way to keep your money accessible for emergencies.

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Mortgage rates are expected to gradually decline over the next year or so, but the immediate impact of rate cuts is unpredictable. Here’s what you should know. [[{“value”:”

The Federal Reserve recently cut its benchmark interest rate for the first time since the onset of the COVID-19 pandemic, and not only that, but the rate cut was significantly more aggressive than many experts had predicted.

However, this is widely expected to be just the first in a series of rate cuts that will last into 2026 at a minimum. Mortgage rates certainly fell quite a bit in anticipation of the September rate cut, but what happens if the Fed cuts rates again at its next meeting in November? Unfortunately, there isn’t an easy answer, but here’s what you should keep in mind.

The Fed is expected to keep cutting rates at its next meeting

Along with its September rate cut, the Federal Reserve released the economic projections of the policy-making members. This included, among other things, the members’ expectations for future rate cuts.

The median expectation from the Fed members is for an additional 50 basis points (half a percentage point) of rate cuts before the end of the year. There are two more scheduled Fed meetings this year, one ending on Nov. 7 and another ending on Dec. 18.

According to the CME Group’s FedWatch tool, which shows what interest rate expectations are priced into financial markets, there’s a 65% chance that we’ll get a 25-basis-point rate cut in November and a 35% chance we’ll see another 50-basis-point cut. But a key takeaway is that it’s a near certainty that we’ll get a rate cut at the conclusion of the next Fed meeting.

Mortgage rates aren’t always reactive to rate cuts

Mortgage rates certainly fell after the Fed announced its 50-basis-point rate cut in September, but it wasn’t necessarily because there was a rate cut. Instead, it is because the rate cut was significantly more aggressive than many had expected. Without getting too deep into the weeds here, there are generally two situations related to Fed rate cuts that can cause mortgage rates to move significantly lower.

Future expectations for interest rate cuts increase

For example, when employment and inflation data was released in June and July, it started to become much clearer that the Fed was going to cut rates in September. That’s when we saw mortgage rates make their largest move to the downside.

Actual rate cuts are more aggressive than expected

Heading into September’s Fed meeting, experts were split between expectations of a 25-basis-point cut or a 50-basis-point cut. We ended up getting the larger cut and saw consumer interest rates (like mortgages) move lower after. So, if we get another 50-basis-point rate cut in November, we could see consumer interest rates fall in reaction to it.

To be perfectly clear, other factors influence mortgage rates, in addition to the benchmark interest rates set by the Fed. For example, supply and demand dynamics play a role, as does the current economic climate.

And mortgage rates are also heavily influenced by future interest rate expectations, not just what the Fed has already done (this is why rates have fallen so far already). That’s why average mortgage rates move from day to day, not just eight times a year when the Federal Reserve’s policy makers release their latest interest rate decision.

Want to see how much more affordable buying a home can be with today’s mortgage rates? Click here to check your rates at our favorite mortgage lenders.

Rates are likely to trend lower, but don’t count on an immediate impact

Mortgage rates are likely to move lower over the next year or two if the Fed rate cuts proceed as expected. In fact, Fannie Mae expects average 30-year mortgage rates of 5.7% by the end of 2025, which could certainly make it more affordable to buy or refinance a home.

But as far as the impact of a November rate cut, it depends on the magnitude of the cut, the language the Fed uses in its accompanying statement, comments made by Fed chair Jerome Powell, and other factors.

One thing to keep in mind is that Fannie Mae’s expectation — and those of most other experts I’ve seen — isn’t for a dramatic drop. So, if you’re in the market for a home and can afford the payment at the current rates, it could be a smart time to buy. After all, if Fannie Mae is wrong and rates end up plunging back into the 4% range, you can always refinance.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Matt Frankel has no position in any of the stocks mentioned. The Motley Fool recommends CME Group. The Motley Fool has a disclosure policy.

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