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Businessinsider - 30 days ago

I built my emergency fund $100 at a time, but I didn t make real progress until I opened a high-yield savings account

I m crazy about my high-yield savings account. When I was struggling to build up an emergency fund a few years ago, I opened a high-yield savings account at Ally and kept my checking account at a different bank. At the time, my account was earning over 2% interest annually. It s now down to 1.7%, but I m still earning nearly 20 times more than I would with a regular savings account. The high APY combined with regular automatic deposits — starting with $100 per paycheck and moving up to $200 — helped me reach my goal that much sooner. Read more personal finance coverage. I m crazy about my high-yield savings account.  Even though interest rates have fallen quite dramatically over the last several months, I d still recommend a no-fee, high-yield savings account to just about anyone.  A few years ago, I was struggling to build up an emergency fund. I d been saving automatically in my 401(k) since I first started working, but it dawned on me that I had no real cash safety net. I started squirreling away leftover money into a regular savings account every month. The problem was that it was attached to my checking account — and it earned meager interest. Every time I logged on, I could see the money I had earmarked for savings. Not only was I often tempted to spend it, I was occasionally discouraged by how little I had amassed. Then I decided to heed the recommendation of a coworker and open a high-yield savings account at Ally. At the time, the online bank was offering an annual percentage yield (APY) well over 2%. The process of opening the account truly couldn t have been easier. I didn t have to put any money down, but I set up a direct deposit of $100 per paycheck and left it alone. I doubled my account balance in just one year As my balance grew, my interest payments — which many high-yield savings accounts, including Ally, pay out monthly — increased, too. Just before I hit my emergency fund balance goal, I got a raise. I bumped up my per paycheck contributions to $200 before the raise even hit my bank a I didn t miss the money since I d never had it in the first place.  I had to dip into the account a few times as minor emergencies called for it. Ally limits withdrawals (or transfers, technically, since it s all online) to six per month and each additional one is $10, but I have yet to exceed the limit. Some other high-yield savings accounts, like Wealthfront and Betterment, allow unlimited monthly transfers, which is a nice feature if you think you ll be pulling from the account regularly. Ultimately, the high APY, combined with automatic deposits, supercharged by savings progress. In 2018, I doubled my high-yield savings account balance, which included $68 in interest. Despite a few rate drops this year to Ally s current 1.7% APY, I m on track to earn over $120 in interest in 2019. If I ever need to drain the account for a real financial emergency, I ll rest easy knowing I won t be charged any fees for a low balance and I ll still earn a solid interest rate. Now I m working on building up my travel fund using the same strategy. More savings and retirement coverage How to retire early How to save more money Are CDs a good investment? When to save money in high-yield savings Join the conversation about this story NOW WATCH: A 45-year-long study discovered trends in successful hyper-intelligent children

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