18. Is a High-Yield Savings Account Right for Your YNAB Budget?

Lindsey: 00:00:00

Hello, and welcome to another episode of the Money Clarity Podcast.

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Today we are diving into high yield

savings accounts, so we're gonna talk

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about what is a high yield savings

account, why you should consider one.

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What are some of the benefits

to high yield savings accounts?

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Even though as you know, my favorite

budgeting software is YNAB and they teach

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you to just use one checking account.

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So what are some of the

benefits to having this?

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And then also downsides to

having a second account linked

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in YNAB and stay till the end.

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And I will share with you my favorite

high yield savings account that I have

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been using for more than 10 years.

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If we haven't met before.

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Hi there.

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My name is Lindsay Ciarrocca.

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I'm a YNAB certified coach

and a certified money coach.

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And my goal is to help you take control

of your money so that you can live your

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greatest life with clarity and confidence.

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And, uh, along the way, I

hope to help you learn to love

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budgeting just as much as I do.

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All right, let's start with the basics.

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What is a high yield savings account?

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A high yield savings account, or you'll

likely see it abbreviated as HYSA.

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Is just like a regular savings account

at your local bank, but the main

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difference is the interest rate or

how much money they pay you to have

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your money sitting in this account.

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So a traditional banks usually

give you less than a quarter

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of a percent, so 0.25%.

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Usually it's honestly closer to 0.01%,

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which is basically pennies and.

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While I love picking up a penny off

the ground and do not discount pennies,

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there is a better option that you can use

and that is a high yield savings account.

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Because the interest rates on

those currently are around 3.5%.

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So essentially you're getting free money

for just letting your cash sit there.

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So what is this interest rate based on?

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Interest rate is actually based on

something that the Federal Reserve sets

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called the federal funds rate, and this is

the interest rate that banks charge each

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other for lending their money overnight.

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Not really anything you need to know, but

can be helpful background information.

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So basically , if you hear on the

news about the Fed raising rates.

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That means it's becoming more

expensive to borrow money.

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So things like your credit card

interest might go up, you will

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likely see mortgage rates going up

eventually, but that also means that

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the interest rate on your savings

account is gonna go up or can go up.

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Um,

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so what does this translate to in.

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Actual dollars.

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So currently the rate on my traditional

savings account is actually 0.25%,

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which I was kind of surprised by.

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So in that case, if I have $100 in

my bank account, I would earn 25

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cents for the year for that $100.

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Whereas if I had it in.

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High yield savings account earning 3.5%,

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I would earn $3 and 50

cents over that 12 months.

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And while that doesn't sound like a

lot of money, once you start to grow

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your savings, and if you're using

YNAB, the way the way I teach it, and

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the way the software is meant to be

used, where you're starting to set

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aside money that you're not using

for a few months at a time, right?

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So if you're planning for your

true expenses and setting aside.

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Money for an expense that's six, eight,

even 12 months down the road, that

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money's just going to be sitting there.

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So wouldn't you like to earn a

little bit more on it than 0.01%

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or 0.25%?

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So imagine if you had a thousand

dollars in money that is

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waiting for jobs down the road.

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Now you're earning $35 per

year versus $2 and 50 cents.

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Again, not life changing amounts,

but it compounds over time.

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So if you get up to the point where

you have $10,000 in that account,

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you're earning $350 a year for just

letting that money sit there versus 25.

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And I don't know about you, but

I am totally willing to take 350

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free dollars from the bank just for

letting me have my money sit there.

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Right?

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Seems like a no-brainer to me.

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So those are the basics of a

high-yield savings account.

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And why you consi should consider one

because they obviously just pay you

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more for letting your money sit there.

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But if.

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You're in the YNAB world YNAB teaches

one account, one single checking

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account, and honestly, that is

the way to start in the beginning.

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It is more simple.

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It is the simplest way to start is

just to have one single checking

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account linked to your YNAB account.

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The reason for this is it just

adds a layer of complexity to be

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transferring money between accounts,

between your regular checking account

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and your high-yield savings account.

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Because in the YNAB world, YNAB

doesn't care where the money is.

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So if you have $200 in your checking

account, but you have a thousand dollars

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in your high yield savings account,

but then you go to look at your budget

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and you have $600 to spend on a home

repair, if you go to try to spend that

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money out of your checking account.

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You don't have enough in there.

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So it just adds a layer of complexity,

which honestly is not worth it in the

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beginning when you're just getting

started and just trying to get a handle

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on the whole YNAB system and how it

works So I still recommend just having

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one account when you're getting started.

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However, once you start to

get into the YNAB habit, once

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you're starting to see your.

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Checking account balance

consistently creep up.

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Maybe now you're sitting there and it's

been a year or two and you're like, oh,

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my checking account just kind of regularly

has two, three, $4,000 sitting in it.

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This is actually what happened to us.

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I got to the point where we had

six or $7,000 just sitting in our

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saving, in our checking account,

and I was like, that money could

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be earning more money elsewhere.

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So that is the benefit

to having that account.

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So again, it creates that layer of

complexity and you do have to pay a

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little bit more attention, and you

do have to make sure that you're

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transferring money back and forth.

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But when you're earning $350 a year

versus $35 a year, it definitely

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could be worth considering.

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Okay, so the last thing I wanna share

with you today is one of, is my favorite.

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Bank account that I have been using for

more than 10 years, which is where I have

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all of our high yield savings accounts.

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And that bank is Ally and

they're an online only bank.

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So there are no brick and mortar

institutions that you can walk into.

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But that's one of the benefits.

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That's one of the, the reasons they're

able, able to offer a little bit of

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a higher interest rate is because

they don't have as much overhead.

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So, like I said, I've been banking

with them since I think: 2012

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2013, and have always had high

yield savings accounts with them.

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So it can connect to your

regular bank account.

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Just like as an online transfer,

it might take a day or two to move

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the money in between accounts,

but it's still your money.

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You still have access to it.

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With Ally, you can also

have a checking account.

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So the checking account, it

is just like your normal one

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where it doesn't have a lot of.

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It doesn't have any, doesn't have a lot

or if any interest associated with it.

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But you could quickly, you could

instantly move money from your

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savings to your checking and your

checking account can come with a

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debit card and checks if you need it.

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So then you have instant access to it.

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Otherwise, you just need to plan

a little bit ahead and move money

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to your regular checking account.

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But this is where I move money

every single month for things

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like our emergency fund.

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Our property taxes that

are paid twice a year.

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Things like travel savings.

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You know, we put several hundred dollars

into our travel category every month.

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I put that in there, but we're

not spending it every month.

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So that just gets to sit in a

high yield savings account and

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earn just a little bit more.

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. I do have an affiliate link for Ally.

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It is the exuberant elephant.com/ally,

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which is spelled a LLY.

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And if you use my referral

link, you could earn up to a

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hundred dollars welcome bonus.

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So I'll leave that link in

the show notes for you below.

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But again, remember if you're

just starting out, don't

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worry about this for now.

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Just get the hang of YNAB, figure

out how it works and get it to make

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sense for you so that you're using it

consistently and that you're consistently

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putting money into those categories

and letting that money start to build.

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All right, so there you have it.

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There are your basics of a

high-yield savings account.

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Like I said, abbreviated HYSA.

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So if you ever see that, that's what that

is, and it's just like a regular savings

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account, except the bank is paying you

more money to have your money there.

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So.

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Free money is always a great thing, right?

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Again, one downside being that it adds a

layer of complexity to your YNAB budget.

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So I don't recommend it until you

get to that stage where you're

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completely comfortable with YNAB.

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But once you do again, now if you have

money that's sitting around for 6, 8, 12

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months, it's earning you just a little

bit more One other fun tip is that I like.

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To take that interest

that we earn every month.

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So when it comes in, just

like a transaction, so it gets

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assigned as ready to assign.

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So it's new money coming into our

account, and what I do is I immediately

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assign that to whatever my priority is.

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Right now it's we're paying off a

student loan, so I take that in the last

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month, I think we got 70 some dollars.

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So I take that 70 some dollars

and assign it to the student loan.

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Again, this can be confusing because

you're thinking, wait, that money

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is in the the savings account, but

I need it in the checking account.

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Again, it doesn't matter in the YNAB

world, so as long as you have money

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in your checking account where you

need it, when the time comes to pay

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the thing, it's totally fine, but so

that's just a fun little trick to be

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able to chip away a little bit more

at your debt or if you want to beef

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up your savings in a certain way.

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You know, just every little dollar that

comes in, you get to add it to a category.

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Because remember, YNAB rule number

one, every dollar gets a job.

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All right.

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So those are my tips for you about

saving in a high-yield savings account.

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All right, if you are just getting

set up with YNAB, and this is a

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little beyond what you're looking

for right now, totally fine.

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I have a free YNAB category set

up guide and template for you.

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Go ahead and download that.

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. You'll find that at

theexuberantelephant.com/ynab-setup.

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Of course, that link will be in

the show notes for you as well.

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So go ahead and grab that if you're

just getting started or go ahead

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and check out Ally through my

affiliate link in the link below.

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Alright, thanks so much for

joining me on another episode

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of the Money Clarity Podcast.

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And remember, your biggest,

wildest dreams are within reach.

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Let's go make some money moves

so that you too can start to

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experience financial freedom.