Developing the skill of saving money is crucial in today’s financial landscape. Shockingly, only 57% of American adults possess adequate financial literacy, a decline from 76% a decade ago. Given the increasing wealth gap, this decline in financial acumen is not unexpected. Financial literacy entails understanding various financial aspects such as investing, budgeting, saving, managing debt, and living within one’s means. A strong grasp of financial literacy empowers individuals to make informed decisions about their financial future, including determining their lifestyle, building credit, saving for retirement, and navigating today’s complex economic environment.
Measuring financial literacy is facilitated by tools like the P-Fin Index, comprising 28 questions in an annual survey. Other surveys, such as “The Big 5” and “The Big 3,” explore topics like risk awareness, retirement planning, social security benefits, inflation, interest types, and investing. A critical question on the P-Fin Index revolves around the concept of compound interest, testing respondents’ ability to calculate future savings growth.
For many Millennials facing economic uncertainties, understanding financial concepts becomes paramount. Transitioning from traditional savings accounts to high-yield options can significantly impact their financial well-being. While 68% of Americans still utilize standard savings accounts, only 24% have embraced high-yield accounts or CDs. High-yield savings accounts offer a passive income stream, allowing individuals to bolster their emergency funds through higher interest rates.
To put it simply, a high-yield savings account functions like charging rent to the bank for holding your money. Unlike the minimal returns of around 0.42% from traditional savings accounts, high-yield options can generate returns of 4% to 5%, maximizing your savings potential. By making this strategic shift, you can secure a more robust financial foundation and capitalize on the benefits of compound interest.
Earn 10 times more free money by utilizing non-traditional accounts rather than keeping your funds in a traditional account. To make the most of capitalism, we should aim to maximize our benefits from the system.
Traditional Savings Account:
The increasing cost of living impacts low-income families in Asia, leading to concerns over overdue bills, debt, home loans, and financial stress. Learning to save money is crucial. Traditional and high-yield savings accounts share similarities but have key differences. Both types of accounts are structurally similar, federally regulated, may limit withdrawals, and require a minimum opening deposit. They also provide NCUA and FDIC insurance, ensuring safety. Traditional savings accounts are accessible and simple, but may have hidden fees, minimum balance requirements, limited online banking, and monthly maintenance fees that could offset interest earnings.
High Yield Savings Accounts:
High-yield savings accounts, available through online banks, credit unions, and neobanks, offer competitive interest rates and dividends, making them appealing for those seeking higher returns. Neobanks are part of the fintech revolution, aiming to provide fee-free, online-only banking solutions with a wide range of financial products. While traditional banks may be preferred by some, high-yield accounts at online banks offer attractive annual percentage yields due to lower operational costs. These accounts often have fewer fees and lower minimum balance requirements, making them accessible to a wider range of customers. Personal preferences play a role in choosing between traditional and high-yield savings options.
Starting fresh with their emergency savings fund could also help you save up enough to treat yourself to your own bag of lollipops. As an adult, you have the freedom to indulge in candy whenever you please.
Certificate of Deposit (CD) Accounts
Close-up of coins stacked in a growth chart for 2025, with a man calculating financial planning. This concept encompasses saving money, making investments, setting aside emergency funds, planning for retirement, purchasing insurance, and earning interests or dividends.
Learning the art of saving money, CDs, or certificates of deposit, present another avenue for building savings. Similar to high-yield savings accounts, CDs come with specific time requirements. These accounts have term limits ranging from 30 days to 60 months or longer, during which you agree not to withdraw funds until the CD matures.
Early withdrawal from a CD typically incurs a significant penalty fee. Upon maturity, it’s common practice to reinvest the amount into a new CD. CDs are ideal for those who don’t require immediate access to their savings and wish to watch it grow passively. Traditional and online banks offer CD Accounts, with online banks often providing more competitive annual percentage yields akin to high-yield savings accounts.
Opening a High-Yield Savings Account
The concept of inflation rates, interest, exchange rates, inflation control, the rise in percentage rates, financial crises, investments, profitable ventures, and global financial advisory services play a role in understanding how to save money.
When deciding on the type of savings account to open, you may opt for multiple accounts to diversify your wealth portfolio, aligning with your long and short-term financial objectives. High-yield savings accounts are commonly offered by banks, credit unions, and credit card companies, with many of the top yields coming from online accounts due to their ability to offer competitive rates.
Setting up a high-yield savings account is a straightforward process. Providing basic information, making a deposit, and voila, you become the proud owner of a high-yield savings account. Some accounts can be opened online within minutes, while others may prefer the security of a face-to-face account setup at a bank branch with assistance from a teller.
The value of a high-yield savings account lies in compound interest and time. By earning simple or compound interest on your deposit over time, you can gradually generate a passive income stream. While savings accounts alone won’t make you wealthy overnight, consistent contributions and compound interest can lead to substantial earnings in the long term.
As adults, it is important to prepare ourselves for the future. Below are sample calculations illustrating how much money you could earn passively in a high-yield savings account. We will consider starting amounts of $1,000 and $5,000 with a $100 monthly contribution, reflecting the average savings of millennials.
2% High-Yield Savings Account:
– Starting Amount: $1,000
– Annual Rate of Return: 2%
– Monthly Savings Contribution: $100
– Total after 1 Year: $2,231
– Total Passive Earnings After 1 Year: $36
– Total after 10 Years: $14,493
– Total Passive Earnings After 10 Years: $2,493
3% High-Yield Savings Account:
– Starting Amount: $1,000
– Annual Rate of Return: 3%
– Monthly Savings Contribution: $100
– Total after 1 Year: $2,247
– Total Passive Earnings After 1 Year: $47
– Total after 10 Years: $15,323
– Total Passive Earnings After 10 Years: $3,323
4% High-Yield Savings Account:
– Starting Amount: $1,000
– Annual Rate of Return: 4%
– Monthly Savings Contribution: $100
– Total after 1 Year: $2,263
– Total Passive Earnings After 1 Year: $63
– Total after 10 Years: $16,216
– Total Passive Earnings After 10 Years: $4,216
Consider opening a high-yield savings account like the American Express High Yield Savings Account, offering an APY of 3.8% with no minimum balance or monthly fee. This account provides benefits for American Express credit cardholders, including access to a high-yield checking account. While there are limitations such as no cash deposits or branch access, customers enjoy 24/7 customer service and a large ATM network.
If you make a purchase that exceeds the funds in your savings account, you will end up accumulating debt. To prevent this situation, overdraft protection comes into play, ensuring that transactions cannot go through when there are insufficient funds available.
Let’s take a look at three different high-yield savings account options to help you grow your money: Capital One 360 Performance Savings, Openbank by Santander High Yield Savings, and Discover Online Savings.
Starting with Capital One 360 Performance Savings, this account offers an Annual Percentage Yield (APY) of 3.80%, with no minimum balance requirement or monthly fees. It’s a great option for customers who prefer automating their savings process. By using the app, customers can easily set up automatic savings plans, manage multiple goal-specific accounts, and even deposit checks remotely. Opening this FDIC-insured account is quick and convenient, taking only about five minutes.
Moving on to Openbank by Santander High Yield Savings, this account boasts an impressive APY of 4.75% with a minimum balance requirement of $500 and no monthly fees. Openbank aims to revolutionize the banking experience by providing secure online banking accessible through your phone, backed by 24/7 customer service. The bank places a strong emphasis on online security through features like face recognition and identity validation. Santander, with 167 years of experience, is committed to ethical banking practices that support education, employability, and entrepreneurship globally.
Lastly, Discover Online Savings offers an APY of 3.75% with no minimum balance requirements or monthly fees. In addition to being FDIC-insured, this account provides automatic deposit insurance up to $250,000. Discover also stands out for its customer support, which is available 24/7. Furthermore, new customers can earn a bonus of $150-$200 for their first $15,000 deposit. Discover offers a range of accounts, including the Discover Cashback Debit, Discover CD, and Discover Money Market Account, providing customers with a comprehensive banking package.
