Ask a Nerd: Is a High-Yield Savings Account Really High-Yield?

When the interest rate on a high-yield savings account hovers around 1%-2%, is it really high-yield?

These days, my answer is “yes.” The rate may not seem exceptional, but to be called a high-yield account, it just has to earn a bunch more than the average savings account. Currently, that’s a weak 0.13% APY, according to the Federal Deposit Insurance Corp. So, accounts that earn above 1% check the box.

The problem is that inflation makes that figure seem extra small. For August 2022, the U.S. Bureau of Labor Statistics reported that the consumer price index was 8.3% higher than a year ago. (The CPI notes changes in the price of certain items compared to earlier periods.)

What this means is that in a bank, your money may have earned 1.5% interest, while in the real world, your money lost 8.3% of its value. It’s hard to feel your money is sitting in a “high-yield” bank account with those numbers. But in the face of inflation, it’s important to remember the main reason you save…

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This article was written by Margarette Burnette and originally published on www.nerdwallet.com