Why You Should Use an HYSA for Your Emergency Fund

An emergency fund is such a vital part of being financially secure. It allows you to cover any unforeseen expenses without having to go into debt. And an emergency fund protects the rest of your savings from being drained when you do have that unexpected event.

This emergency fund is specifically for those unplanned car troubles, trips to the ER, vet bills for your dog who just ate a wasp, fixing the heater in your house and more. It is specifically meant to be used to protect your other finances, so you don’t overcharge your credit card. Or pull out all of the money you had saved for buying a house, paying for a wedding, vacation, or other big life event.

Essentially, you should think of your emergency fund as a tool., because that’s exactly what money is.

What is an HYSA?

HYSA stands for a high-yield savings account. You’ve probably heard of a savings account because if you have a bank account, you likely also have a savings account. Or a checking account.

So what is the difference between a regular savings account and a high-yield savings account?

Well, the difference is in the name. A regular savings account, that you have through your local bank, will typically have an interest yield of less than 0.5-1%. This, of course, all varies by bank and location. The interest is usually at most a few cents every month, or however frequently your interest is paid to you.

A high-yield savings account, or HYSA will yield closer to 1-3% or higher depending on your bank, or the financial institution you are using.

When you are looking into getting an HYSA, you will also want to look into the percentage yield and how often it will compound. Percentage yield will by the APY, while the compound frequency will determine how often interest is paid to you. You may need to look into the fine print for this information if it isn’t clearly provided.

What account I like to use

I currently use SoFi, as it is recommended by my favorite financial podcast host, Tori Dunlap who is the founder of Her First 100K. At first I didn’t have much invested in my savings account. But regardless of the small amount, at the end of my first month I had already gained $.05 in interest with only $100 in the account.

Even though it doesn’t sound like much, this is a huge amount from what I have seen in my regular bank savings accounts. My interest rate for the next month even increased after I set up direct deposit from my paycheck. The amount that I gained the next month was even more exciting. I now had $200 of my own money, and a total of $0.26 of theirs in interest.

It sounds kind of pathetic to be excited for just a little change. But for a fund which is supposed to be left untouched until necessary, this was super exciting to me.

Think about how much you’ll gain over time just by letting your money sit safely in an account that gains high interest? Especially if you don’t need to withdraw for quite a while.

Why is it so important to have an emergency fund?

Because of the nature of emergencies, the cost alone is reason enough to have a fund. When an emergency pops up, the last thing you want, or should, worry about is money.

• “Can I really afford to go to the emergency room?”
• “If I can’t afford this car repair, I won’t be able to go to work.”
• “How long can I wait to fix the heater in my house?”
• “The fridge just stopped working, and I don’t know what to do!”
• “If I don’t pay the deductible for the insurance by tomorrow, I won’t be able to pay for all of the smoke damage…”

While these are only a few of the many possible emergencies, they can still be pretty scary when they happen. Which is exactly why it is so important to have an emergency fund.

The money you have saved in this fund can protect you from debt, worry, and other financial struggles.

If you are enjoying this post, you may also enjoy these other posts too.

• Why You Need an Emergency Fund
• Why Every Student Needs to Take a Personal Finance Course
• How I Save a Ton of Money Refilling my own Ink

Before opening an HYSA account, what do I need to know?

Before you open a high yield savings account, you will want to be mindful of a few things first.

1. How accessible is this money if I need it right away?
2. What is the APY and how often is interest paid?
3. Do I need to deposit a certain amount to open an account?
4. Are there any withdrawal, depositing, or spending restrictions with this account?
5. Where can I withdrawal money if I need cash?

When looking for a bank or financial institution with which to open your HYSA, keep these questions in mind. They can help guide you to a more suitable option specific to you and your financial health.

While I really enjoy using SoFi and have had good experiences, you may choose to use different options that are more suitable to you. So do your research and find your best options!

Is an HYSA useful for anything besides an emergency fund?

An HYSA can feel like free money after a while. And it can even be a great way to save up for big events or life goals as well. Like buying a house, paying for a wedding, college fund, new car, and more.

With my HYSA account, I have most of my money funneled into my emergency fund. Since that was the main reason I opened the account. But, I also decided to start setting money aside specifically for my other life goals.

Within the next 5-10 years, I really want to be able to afford the down payment for a home. Within the next 5 years, I want to have enough money to pay for at least half of a wedding. And at some point, within the next 5 years, I will likely take a vacation or some other kind of getaway.

While I don’t have much money saved into each of these vaults, what SoFi calls them, I have some cash set aside for safe use when the time arrises. The money I have set aside for each of these purposes is still earning high interest as well.

So, every paycheck I am contributing money into my emergency fund. But, I am also setting aside a little bit into my other money goals as well. Whichever goal I feel is a higher priority, I contribute more cash.

For example, I don’t necessarily see myself buying a home within the next 5 years. So this isn’t as much of a priority as a wedding or a vacation. And, it’s also important to keep in mind that my income isn’t likely to be the only contributing factor into these funds. I will likely buy my house with a partners income, and a wedding will probably have multiple contributing incomes as well.