- I'm one of the many self-employed people who set aside money for taxes throughout the year so I can afford to pay my bill come tax time .
- Instead of keeping my tax money in a typical bank savings account, I stash it in a high-yield savings account where I earned $200 in interest in 2019.
- I love using high-yield savings accounts at my online bank bank Marcus by Goldman Sachs because I can open as many accounts as I want and see my savings goals clearly laid out.
- See Business Insider's picks for the best high-yield savings account
As a self-employed person, I set aside money throughout the year to pay my bill come tax time.
Personally, I like to keep my tax money completely separate from all my other money so that I'm not tempted to spend it on Taco Bell, sequined rainbow jumpsuits, or whatever else I find myself dropping money on, and the best place I've found to keep it is in a high-yield savings account .
Every month, I calculate my revenue and corresponding taxes, and move that amount from my business checking account into my high-interest savings account. I also keep a buffer of several thousand dollars in that account for no other reason than sheer paranoia that I'm calculating my taxes wrong.
Why I keep my tax money in a high-yield savings account
I use a high-yield savings account for my tax money because I figure I should make a little interest on that cash if it's just going to have to sit in a bank account anyway.
If I kept this money in an account at a commercial bank, I would have earned next to nothing on it over the years. But by keeping that money in a high-yield savings account, I earned nearly $200 in interest on my tax money in 2019. (In total, I earned about $800 in interest on all the money I kept in five different high-yield savings accounts last year.)
I personally use an account from Marcus by Goldman Sachs , but there are plenty of others . I initially started an account at Marcus two years ago, precisely for this reason: to have a place to save for taxes.
Many high-yield saving accounts are offered by online-only banks. The lower overhead costs allow them to offer a higher rate of interest on the cash savings. Interest rates have been pitiful for as long as I can remember, but high-yield savings accounts arrived on the scene a few years ago and offer a bit more juice. My old savings account at a typical national paid pennies in interest. Literally, pennies.
I have multiple high-yield savings accounts
While it's great to earn interest on cash savings, I like high-interest savings accounts for more reasons than just this. Many have no minimum balance requirement and no fees associated with opening the accounts. This combination of factors opens up a whole new world of flexibility with banking.
At many commercial banks, there are prohibitive monthly fees and minimums within accounts. That might be OK if you only want to maintain one savings account, but I needed separate, smaller buckets. I refuse to pay $12 per month for an account balance that falls below a threshold for even just one account.
I have different accounts for the following purposes: emergency savings, a down payment for a rental property, a travel fund, a slush fund, and my self-employed taxes.
With Marcus, it takes two minutes to open up separate accounts and each of which can have its own special name. (Right now, my travel fund is called "ISLAND PARTTAY," because months in quarantine have this city-bound gal dreamin'.) For me, it's motivating to see, so clearly laid out, my different savings goal and their corresponding dollar figures.
Of all my saving accounts, my account for self-employed taxes fluctuates the most. But whether the balance is growing or shrinking, I am still earning interest on that money. Rates have also come down this year, so I won't earn as much interest as I did last year, but it's still better than nothing.
Obviously, a couple hundred dollars in interest is not going to change my financial life. But it is money for doing nothing, which is the best kind of money.
This interest is earned on top of money that had no choice but to sit in a bank account anyway. Really, the only debate here is how to spend it! I think that I'll use this cash to pay an accountant. Because frankly, there's nothing that I hate more than doing my taxes.
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