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Not Saving Enough for a Rainy Day?

High Yield Savings Accounts and CDs Can Help

May 16, 2019

If we aren’t saving enough in good times, what happens when the lean times come?


Despite a booming economy, impressive job growth, continued low inflation and a decade-long bull market, Americans still are not saving enough. Several surveys show that American savings accounts are smaller than they should be. This makes for challenging times when inevitable financial surprises come along, like job loss or expenditures on vacations, home improvements, new cars, and such.


While the economy keeps humming and there’s still time to put aside some cash, here are a few time-tested tips to jumpstart your short-term savings agenda and a short primer on some of the best financial tools for doing so, such as high yield savings accounts and certificates of deposit (CDs).


Boom Times, Savings Account Bust

So how small are Americans’ savings accounts? A Spring 2018 survey by, a leading consumer financial news and advice outlet, showed that 40 percent of those surveyed were saving less than 5 percent of their income, and 19 percent were saving nothing at all.1 A separate survey revealed that millennials are poorer savers than older folks: 46 percent of millennials were at zero savings but “only” 33 percent of Baby Boomers (ages 55 to 65).2


How Much Should Americans Be Saving?

So, people are not saving enough. But how much is enough? For long-term retirement, experts suggest 30-year-olds should have cumulative savings equal to their salary, 40-year-olds should have three times their salary saved up, 50-year-olds should be at six times, 60-year-olds at eight times, and 67-year-olds at 10 times.3


For shorter-term needs and emergency funding that could be accommodated by starting up a high yield savings account or CD, experts recommend having enough saved to cover three-to-six months of expenses for things like housing, transportation, food, health care/insurance, utilities, and debt payments.4 Putting away that much money will help avoid high borrowing costs from credit cards or high-interest loans.5


Short-Term Savings Strategies

Some of the best ideas for getting into a savings state of mind use psychology to improve your motivation to save, including:6

  • Make savings a “default” activity instead of an individual decision by setting up automatic paycheck withdrawals into retirement or savings accounts.
  • When considering an expensive purchase, think about how many hours of work it will take to pay for it. Spending $1,500 to upgrade your living-room TV to the latest 75-inch 4K technology means working 30 hours if you earn $50 an hour.
  • Get into the habit of tracking expenses on a weekly or monthly basis using mobile or web-based applications.
  • For a really big short-term purchase, resist the urge to buy now and try a waiting period. Some experts suggest waiting one day for every $100.7

For many consumers, an emergency fund is a key short-term savings need. This is usually a savings account with money set aside for, well, emergencies, such as a visit to the hospital, home-appliance repair or replacement, auto repairs, or job loss.


CDs and Savings Accounts For The Short Term

Two key options for building short-term savings are high yield savings accounts and CDs. These offer higher interest rates than bank savings accounts and a good degree of liquidity to gain access to savings when needed. High yield savings accounts offer variable interest rates that are typically higher than regular checking and savings accounts from brick-and-mortar banks. In return for higher rates, there are some limitations in withdrawals (typically a maximum of six online and telephone withdrawals per monthly statement cycle). Savings accounts are flexible and are ideal for emergency funds because they are so accessible.


Where savings accounts have variable interest rates, CDs offer fixed interest rates that are generally higher than rates from savings accounts. But in return for the higher rate, funds can be accessed without penalty only when the CD reaches maturity. CDs generally mature in terms ranging from 6 to 60 months, with many stops in between.


What Is APY and How Does It Make Money?

Many people still use regular bank checking and savings accounts and may even be unaware of higher-return saving alternatives such as high yield savings accounts and CDs. Some are aware but haven’t taken the time to figure out how they work. But the average interest-bearing checking account delivers only 0.04 percent annual percentage yield (or APY).8 Meanwhile, high yield savings accounts are offering around 2 percent APY9 and the best CD rates are generally around 2.5 percent to 2.9 percent APY (for a CD that matures in two years).10


Don’t be thrown by terms like APY, the now-common term used to describe interest paid in savings, checking, and other interest-bearing accounts. It’s different – and higher – than the interest rate only because it includes “compounding.” Interest is generally compounded quarterly, monthly, or daily. As a result, the interest added to an account becomes part of the average daily balance on which interest is earned in the next cycle.11

The Bottom Line


Economies go in cycles so, by definition, good times don’t last forever. Given research showing Americans simply don’t save enough, you may wish to consider small, practical ways to protect yourself against emergencies as well as anticipated major purchases. High yield savings accounts and CDs offer higher interest than garden-variety brick-and-mortar bank checking and savings accounts, which could help kick Americans’ savings strategies into a higher gear.

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†Accounts offered by American

Express National Bank. Member FDIC. Each depositor is insured to at least $250,000 per depositor, per insured bank, per ownership category.

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*The Annual Percentage Yield (APY) as advertised is accurate as of . Interest rate and APY are subject to change at any time without notice before and after a High Yield Savings Account is opened.


For a CD account, rates are subject to change at any time without notice before the account is funded. The rate received will either be (i) the rate reflected during your application process or (ii) the rate being offered when your CD is funded, whichever is higher. All CDs must be funded within 60 calendar days from the time we approve your application or will be subject to closure. The interest rate and Annual Percentage Yield (APY) will be disclosed in your account-opening documents, which you will receive after completing your account-opening deposit. After a CD is opened, additional deposits to the account are not permitted. Early CD withdrawals may be subject to significant penalties which could cause you to lose some of your principal. Please see the Deposit Account Agreement for additional terms and conditions and Truth-in-Savings disclosures.


**The national rate referenced is from the FDIC's published Monthly Rate Cap Information for Savings deposit products. Visit the FDIC website for details.


‡For purposes of transferring funds, business days are Monday through Friday, excluding holidays. Transfers can be initiated 24/7 via the website or phone, but any transfers initiated after 7:00 PM Eastern Time or on non-business days will begin processing on the next business day. Funds deposited into your account may be subject to holds. See the Funds Availability section of your Deposit Account Agreement for more information.


♢Calculations are estimates of expected interest earned. Actual results may vary, based on various factors such as leap years, timing of deposits, rounding, and variation in interest rates. The first recurring deposit is assumed to begin in the second period after any initial deposit.


§IRA Contributions are subject to aggregate annual limits across all IRA plans held at American Express or other institutions. IRA distributions may be taxed and subject to penalties based on IRS guidelines. Required minimum distribution, if applicable, is only relevant to this IRA plan and does not take into consideration other IRA plans held at American Express or other institutions. Please see for more information. We recommend you consult with a financial or tax advisor when making contributions to and distributions from an IRA plan account.