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These are the 3 best uses for a high-yield savings account
With compound interest in a high-yield savings account, you earn more than in a traditional account. CNBC Select breaks down the three best uses for stashing your cash.
Editor's Note: APYs listed in this article are up-to-date as of the time of publication. They may fluctuate (up or down) as the Fed rate changes. CNBC will update as changes are made public.
It's good to have a separate savings account for your emergency fund and short-term savings goals, rather than keeping all your money in a checking account where you might be more tempted to spend it.
And if your money is going to sit in savings, you should try to make the most of it. With a high-yield savings account, you earn more interest than with a traditional savings account. Thanks to compound interest — which means your cash is earning interest on interest — your money grows at a faster rate.
CNBC Select ranked the five best high-yield savings accounts, and each one could earn you at least 10X more money than the national average APY on savings accounts, which is just 0.04%, according to the Federal Deposit Insurance Corporation (FDIC).
Below, we list the three best uses for stashing your cash in a high-yield savings account.
1. Emergency funds
During economic downturns, such as the one we are experiencing right now, it's essential to have an emergency fund to fall back on. While financial experts generally recommend having enough saved to cover at least three to six months' worth of expenses, this may not be realistic for everyone. Your best bet if you have extra cash is to put it in a high-yield savings account that can increase your savings but give you the option to withdraw the money if you need to. By law, consumers can withdraw or transfer cash out of a high-yield savings account up to six times per month without paying any fees.
Currently, this rule has been temporarily lifted, allowing savings account holders to "make an unlimited number of convenient transfers and withdrawals from their savings deposits," according to a statement by the Federal Reserve Board.
CNBC Select ranked the Synchrony Bank High Yield Savings as the best choice for easy access to your cash since it offers users convenient withdrawal options, including an optional ATM card.
2. Short-term savings
It's fun to have a savings goal in mind, and it's even better when you have a strategy in place to help get you there on time.
For this reason, high-yield savings accounts are "a fantastic way to save up cash for short-term goals or needs that are within a year or two," Shon Anderson, a certified financial planner and president at Anderson Financial Strategies, tells CNBC Select.
This might include saving up for a family vacation or a new car.
And if you're someone who needs a little motivation to save, the Varo Savings Account offers tools to help you. Not only does it offer a higher rate of return, or APY, if you save more, but the online bank also offers two programs: Save Your Pay and Save Your Change. Both options automatically transfer money from your Varo bank account to your savings account.
3. Large expenses
A higher yield on your money can really help you when saving up for a large purchase, such as a down payment on a home. You'll earn more with compound interest if you put your money into a high-yield savings account.
For example, with the Vio Bank High Yield Online Savings Account, account holders get one of the highest APY rates for high-yield savings accounts, at 1.10%. There is a minimum $100 deposit required to open an account, but that is lower than what some of the other high-APY savings accounts require. This can really benefit you over time.
If you were to put $10,000 into a Vio high-yield savings account, your deposit could yield $58 after just one year.
Information about the Synchrony Bank High Yield Savings, Vio Bank High Yield Online Savings Account, and Varo Savings Account has been collected independently by CNBC and has not been reviewed or provided by the bank prior to publication. Synchrony Bank is a Member FDIC. Vio Bank is a division of MidFirst Bank, Member FDIC. Varo Bank Account Services are provided by The Bancorp Bank, Member FDIC.