The problem with a High Yield Savings account

Often, people overlook how much life insurance can set you up for the future.

The problem with a High Yield Savings account

High Yield Savings account is good for one thing – people just starting to save or for short (very short) term investments. This savings means if you’re working on building up for a vacation and want to try to accumulate interest, this investment could be a good option. Or maybe you’re looking for a property to buy to turn it into a rental property and want to let your money build up a small amount of interest.

Why can’t I use a High Yield Savings account for long-term investment?

High-yield savings accounts are not beneficial for long-term savings because they have low interest rates. One of the highest rates I have seen with no minimum deposit is 1.90%. This number is significantly higher than the national average of 0.05% for traditional savings accounts.

Is 1.90% that bad?

YES! Let’s do some math to help you visualize how bad 1.90% is. Say your initial deposit is $1,500. You contribute $100 a month for 40 years. Your principle on that is $49,000. Your interest on 1.90% compounded yearly is $25,402.46, totaling only $74,402.46. That’s at max two years of living expenses with the national average. Most people can not afford to contribute more than $100 a month. Which is partially why this number is so low. 1.90% can only do so much for you in the long run. There are better options out there. Life Insurance is another option for investing that could yield much higher returns than an insignificant 1.90%. For instance, some REITs are quoting historical returns of over 7%.

Can I get a higher percentage with a large deposit?

Not necessarily. Some banks may offer a higher interest rate with a larger deposit/balance.

What is a better option?

life insurance

There are several different options out there for savings and investing in your future. High Yield Savings account is short-term, a place to put your money for a while and wait for your next significant investment. Here are just a few other investing or saving options.

  • REITs
  • IRAs (Either Traditional or Roth)
  • CDs
  • Real Estate
  • 401Ks
  • Life Insurance
  • 403Bs

There are many other options out there that are not on this list. However, the above examples are some of the most popular.

Life Insurance Questions?

We hope that this information on life insurance was useful to you.

If you’d like to learn how we can help you plan your retirement, call Empower Brokerage at (888) 539-1633 to speak to one of our Life and Annuity experts or leave a comment down below.

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This article was updated on 6/10/2024.

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