A high-yield savings account may be a good option if you are trying to build your savings. However, you should be aware of the downsides of this type of account. Keep reading to learn about the benefits and disadvantages of this type of account. These include the minimum balance required and the interest rate.
Introduction of High Yield Savings Account
The national average profit on a high-profit savings account is often 20 to 25 times greater than the national average on a standard savings account. It’s easy and quick for people to transfer funds between their savings and checking accounts if they hold both at the same bank. In addition to internet-only banks, traditional banks have also opened their doors to customers across the country online, so competition over high-yield savings accounts has skyrocketed.
The increase in earnings is significant, given the difference between high-yield savings account rates and the national average. In the case of $5,000 in savings, the national average annual percentage yield is 0.10 percent, so you’d earn just $5. The same $5,000 would earn you $100 if you placed it in an account earning 2%.
Benefits of High Yield Savings Account
High-yield savings accounts are good options for those looking for a safe place to park their money. These accounts will increase the amount of money you earn slowly but steadily. They can also be used for short-term goals such as home repairs. Having an account dedicated to your savings goals makes tracking the money you’re saving each month easier.
The process of opening a high-yield savings account is not too difficult. You can usually complete an online application in 15 minutes or less. Ensure you have your Social Security Number, driver’s license, and information from your primary bank account. Next, compare interest rates and fees to find your best savings account.
One of the biggest benefits of high-yield savings accounts is that they earn daily interest. Unlike a traditional savings account, high-profit accounts can earn up to two times the amount of money that a traditional account will earn. For example, you will earn one dollar if you have $10,000 in a traditional account. However, if you have the same amount of money in a high-profit savings account, you’ll earn $211 a year. There are several different kinds of high-yield savings accounts. You can choose one at a traditional bank or even an internet-only bank.
Drawbacks of High Yield Savings Account
High-profit savings accounts are a great way to earn higher interest than the average savings account. They can help you meet your short-term goals and build your savings pool. However, some drawbacks should be considered before opening one. While they can be beneficial for various purposes, high-yield savings accounts are not ideal for all saving plans.
These accounts typically have higher interest rates than traditional savings accounts, making them a great place to put your money while still allowing you access to the features of a checking account. High-yield savings accounts often have no minimum balance requirements or monthly fees. In addition, these accounts can be much more flexible when using your money.
High-yield savings accounts are not the best option for long-term investing. Instead, an IRA or 401(k) may be a better choice. They offer tax benefits and the potential for larger gains. High-yield savings accounts also typically have low balance requirements, which make them less attractive for individuals who need higher returns.
How to Choose a High-Yield Savings Account
The best way to find a high-yield account is to compare options across the marketplace, whether you’re shopping for one at a new institution or have one at your current bank. A large balance in savings can result in a large difference in interest rates and fees over time. Consider these things when comparing:
1. Interest Rates
A high-yield savings account pays a higher interest rate than a traditional one. These accounts are often available online or at brick-and-mortar financial institutions. However, interest rates in high-yield savings accounts are calculated as APYs or Annual Percentage Yields. These figures are multiplied by the money you deposit in your savings account. For example, if you deposit $1000, you will earn $0.60 APY over a year. Likewise, if you deposit the same amount every month, you will earn $0.16 per month.
Because high-yield savings account interest rates are tied to the federal funds rate, they can fluctuate. Consequently, you may want to compare interest rates on several different accounts before deciding which offers you the best interest rate.
2. Required Initial Deposit
Can you deposit that much at the outset to open the account, and how much money is required to open it?
3. Minimum Balance Required
If you are interested in increasing your savings but don’t want to deal with the risks associated with investing in the stock market, a high-profit savings account is a good option. You can open an account with as little as $0, but if you plan on making larger deposits shortly, you may want to choose a higher-balance account instead.
Many banks offer a high-yield savings account. Sallie Mae, for example, offers one that pays higher interest than other accounts. In addition to being free of monthly fees, you won’t have to maintain a minimum balance. Other banks also offer high-yield savings accounts, including Ally Bank and Citi Bank. You can use a service like Credible to compare different accounts and learn more about their features.
4. Feesof High Yield Savings Account
Does this account have any fees charged by the bank or credit union? Do you have any suggestions for preventing this from happening (e.g., always keeping your balance above the minimum threshold)? Furthermore, what is the bank’s penalty for exceeding the federally mandated withdrawal limit of six per month?
5. Links to Other Banks or Brokerage Accounts
Do you have the option of linking your high-yield saving account to deposits at other banks or brokerages? Does linking multiple accounts have restrictions, or is there a waiting period before you can change the account you initially linked?
6. Accessing Your Money
If there are any additional withdrawal options, what are they? Can you use an automatic teller machine card to withdraw money from savings?
7. Deposit Options
Can you deposit checks into your account with the bank’s smartphone app if you expect to need to deposit checks? If not, can you mail in checks or deposit them via ATM?
8. Compounding Method
There are several ways that banks can compound interest, such as daily, monthly, quarterly, semi-annually, or annually. By comparing accounts by APY rather than the annual interest rate, you will already have considered the compounding factor, even if more frequent compounding increases your take-home yield.
Conclusion
If you’re interested in starting a high-yield savings account but are unsure where to start, check out our guide on setting up a high-profit savings account to see how easy it is to get started.
You can also sign up for an Ally checking account with 1.25% APY or better if you have a higher balance. How to find the best savings accounts We’ve researched the most popular high-yield savings accounts for our readers, so you can easily find the best accounts for your needs.
Here’s what we found: Best High-Yield Savings Accounts. When comparing high-yield savings accounts, look at your savings rate (the return) and your minimum balance requirements. While all high-yield savings accounts have high APYs, not all will allow you to earn as much interest on a given amount.
