Recently I have noticed a lot of talk around High Yield Savings Accounts (HYSA) in personal finance communities. But have you thought of using it in your business before? Maybe you have heard it thrown around in conversations too and you are wondering:
“Is it worth it?”
“What are the restrictions?”
“What should I look for?”
So let’s take a look behind the curtain how I have seen it used as well as how I personally use it.
First off, a High Yield Savings Account is similar to a standard savings account but there’s usually more interest to be earned. A standard savings account may have 0.4% interest rate, whereas a HYSA can have up to 5-5.5% interest rate.
For example, if we set aside $10,000 of our money into a standard savings account, we would make about $40 that first year
.
If instead we moved that $10,000 to a HYSA at 5% interest, we would make $500 in interest… Ahhh now I like the sound of that better!
That’s a difference of an additional $460 at no extra effort to you!
A HYSA for a business is beneficial when a business has profits but is not ready to allocate them back into the business, investments, or personal pay.
Let me explain…
Assume we have a business and our goal is to move into a new building. This new building requires a conventional loan so we are building up the savings for a down payment. A HYSA would be a fantastic way to stash cash away since it’s in an account we don’t have a debit card to and our money will be making more money until we are ready for that down payment.
I’m sure you’re thinking, “If I have that money why don’t I just pay myself that money?”
Let me ask you this… have you talked to your tax professional about this? Have you thought of the effects if you dramatically increase your personal income without a thought of tax implications? Would that move you to a new tax bracket? Would that limit you from investing in some accounts that are only for certain incomes (like a Roth IRA)?
So there are situations where you cannot pay yourself an extra $10,000 if that moves you to a different income situation. A HYSA account allows you to keep the cash asset in the business, while making some profits, until you and your tax professional can sit down and evaluate how to effectively move the asset to you based on your goals. They will keep in mind how it can affect all tax situations and potential bills coming up.
How to Set Up Your HYSA:
So if you want to set up a HYSA for your business I have some starting suggestions.
Choose your bank:
First, you need to shop around where you want to open your HYSA. Some online banks may offer up to 5.5% or 5.75%. I chose to go with a bank I already bank at, even though it’s a slightly lower rate because it is easier to transfer money between accounts. I personally use American Express HYSA.
Look for no extra fees:
Secondly, I suggest making sure that the account will not be charging you extra. Look out that there are no wire transfer fees, no monthly account fees, and several or unlimited withdrawals without penalty.
Schedule Deposits:
Finally, I suggest setting yourself up on a schedule to make regular deposits. My business bank account allows me to set up automatic transfers so I don’t have to remember to deposit into my HYSA at the end of the month.
So now you have all the tools to shop around for your HYSA for your business. You can also do this in your personal life for savings. If you are wondering if a HYSA is right for your business, please schedule your free consultation with me so we can chat.