This story is part of CNBC Make It's One-Minute Money Hacks series, which provides easy, straightforward tips and tricks to help you understand your finances and take control of your money.
Building up your emergency savings can take time, but is crucial to making sure that you can cover any unexpected costs. However, your savings account probably isn't earning much interest.
A high-yield savings account with an online bank can offer much more. It can be a good place to store your emergency savings and let it earn some interest without any investment risk. These accounts also offer more liquidity than investing through a brokerage account, which makes it easier to get your money out if you need it in an emergency.
The average savings account earns an annual percentage yield of around 0.06%, while high-yield accounts currently earn around 0.5% APY.
Although it's not as much as they have previously earned, it's still better than nothing.
Let's compare. Say you have a balance of $5,000. With a 0.06% rate of return, you'd earn around 25 cents over the course of a year.
But with a 0.5% APY, you'd earn around $2 a year. Again, it's not a huge amount, but it's still eight times as much.
There are a variety of different accounts out there with various terms and interest rates, so make sure you shop around and look for the account that will best suit you.
But in general, high-yield accounts are available from online banks that typically offer no monthly fees or minimum balance requirements. This also makes it easy to manage your money from wherever you are through an online banking app.
There are downsides, however. Most online banks don't have physical locations and not all offer ATM cards for easy withdrawals. Additionally, interest rates on high-yield accounts are variable, so while they could rise at any time, they could also drop.
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