A high-yield savings account works similarly to a standard banking / checking account however will have a much higher interest rate.

 

An interest rate (In this context) represents how much money you will be given in excess of your current cash holding.

 

Let’s say you have £1000. If you hold this money in a checking account with 0% interest, after one year you would still have £1000.

If you instead put that £1000 in a new HYSA with a 5% interest rate, at the end of the year you would have £1050.

 

Now, of course, that example doesn’t sound too exciting but you must first remember that this interest income is “free” money. You haven’t had to do any extra work to gain that income and can now enjoy a nice meal out effectively for free.

 

But this gets even more exciting with larger amounts of money: Say you had £10,000 – After a year with our 5% interest rate you would have gained an incredible £500 for free!

 

We also should look at compounding. Let’s say you had £10,000 at age 18. If you held that cash in a checking account, you would retire with that same £10,000. If you instead kept that money in a HYSA, at age 65 you would have £100,000!

 

Not bad considering you can open an account for free within 20 minutes!

 

HYSAs work best when used for Emergency funds and cash reserve holdings so that you have consistent access to cash whilst also allowing that reserve cash to grow and grow without you needing to do any additional work.

 

That is what a HYSA (High-yield savings account) is, and hopefully I have showed why every single person should have one!