If You Do One Thing With Your Savings in 2024, Do This

Whether you have $100 or $100,000 in a traditional savings account, this year is a great time to get into the habit of earning more interest. The truth is, though, it won't happen if your money remains trapped in an account that fails to keep pace with inflation. The current rate of inflation hovers around 3% -- a good sign that inflation is cooling. However, the average savings account pays an annual percentage yield (APY) of 0.47%.

If you do one thing with your savings account this year, move it to a high-yield savings account. As the name suggests, a high-yield savings account is a type of savings account. The big difference between a high-yield savings account and a traditional account is the amount of interest each pays.

APYs tell the story

As mentioned, the average savings account nationwide pays 0.47% APY. The average high-interest savings account pays much more. For example, CIT Savings Connect through CIT currently offers a rate of 4.65%. That's nearly 10 times more, and all you have to do is open an account with CIT, deposit at least $100, and wait for the account to grow.

Let's say you deposit $1,000 into a savings account paying an APY of 0.47% and $1,000 into a high-interest savings account offering a 4.65% APY. After one year, the traditional savings account will have earned $4.71 in interest. At the same time, the high-interest savings account will earn $46.55.

But what if you deposit $5,000 into CIT Savings Connect? As long as the interest rate remains steady, you'll earn $232.74 in one year. And remember, thanks to compound interest, any money you earn will begin to earn its own interest.

You may expand your comfort zone

Not so long ago, most of us opened a bank account at one bank and never considered opening another account somewhere else or moving our money altogether. Today, we have more options than ever. Thanks to the number of online financial institutions, we can easily open new accounts. Better yet, due to their low overhead, online banks typically offer much more attractive rates.

Even if it feels odd to change old habits, you may be surprised by how simple it is to move your money. You may also be surprised at how easy it is to have access to your money when you need it. If you're primarily moving the funds you've earmarked as an emergency savings account, you don't have to worry about whether the money will be available if an emergency occurs.

And if you're worried about whether your money is safe with an online-only bank, the answer is yes. As long as a financial institution is an FDIC- or NCUA-member, your money is insured for up to $250,000, per account holder, per financial institution, and per ownership category. If the worst should happen and the bank or credit union goes belly-up, your money is protected.

Rates may drop, but it really doesn't matter

Months into the pandemic, inflation soared. In response, the Federal Reserve raised the federal funds rate to combat that inflation. Suddenly, loan and credit card interest rates increased. At the same time, though, the rates paid on deposit accounts like high-yield savings accounts, certificates of deposit (CDs), and money market accounts (MMAs) also increased.

While the federal funds rate does not directly impact the rates banks offer consumers, the two rates typically move in the same direction. For example, when the federal funds rate increases, the rates on deposit accounts increase. However, according to CBS News, there's a good chance rates on deposit accounts will creep down over the course of 2024 as the Federal Reserve lowers the federal funds rate.

Let's say a rate that's 4.65% today falls to 3%. You still earn more than you would earn with a traditional savings account. What's more, rising and falling interest rates are a natural part of the economic cycle. What goes up comes down, and vice versa. Even if rates drop this year, give it time. As rates begin to climb again one day, your money will already be where you need it to be.

You are undoubtedly busy, and it's easy to postpone small, boring tasks. However, if you plan to do anything with your savings account this year, you won't regret making this one move.