A high yield savings account can help you grow your savings a bit faster.
Standard or traditional savings accounts have a low interest rate that is earned on your money. A high yield account will offer a higher interest rate that you will earn on the money you are saving.
It in a way allows you to grow your money effectively risk-free. Another advantage to a high yield savings account is you can access your money when you need it, unlike other savings options such as certificate of deposit (CD). With a high yield savings account you can deposit and withdraw money relatively easily.
What are some benefits of a High Yield Savings Account?
Interest Rate – You typically earn a higher interest rate than the national average on a standard or traditional savings account. There are many online HYS accounts, but is always wise and beneficial to check with your local bank as well.
Risk Free Savings – Unlike investing our money in stocks, your money is secure and your deposits are FDIC insured, ensuring that you will get your money back, up to the limits of FDIC, even if the bank fails. Whereas stocks, your money will fluctuate with the stock market and you could lose what you put in.
Flexibility – You can access your money when you need to. The money is not locked in and or there is not a penalty if you need to access the money sooner than you planned. It is a great way to save for upcoming purchases, like a down payment on a home.
Ideal for emergency funds – It is a great place to build an emergency fund, you will earn interest while you aren’t using the funds, but they are accessible if you need them.
Are there drawbacks of a High Yield Savings Account?
Most things in life have pros and cons, here are a few things that could be drawbacks.
Not for daily transactions – A high yield savings account, like standard savings accounts may have limits on how many withdraws you can make in a certain amount of time. You don’t place your cash that you plan to spend right away into a HYS account.
Minimum deposit to open and minimum balance requirements – Unlike standards savings accounts, because a HYS account offers better interest rates there may be higher opening deposit amount required. Something else to make sure you are aware of is that there may be a higher daily minimum balance requirement. Depending on the bank they may require a certain minimum balance amount to avoid monthly service fees.
Interest rate fluctuation – Unlike certificate of deposits (CD’s), the interest rate you receive on a HYS account is not locked in. The interest rate can fluctuate and chance without notice.
Usually on line – Some banks may offer a HYS account, but a lot of times they are online accounts. It is important to understand how you can make deposits and withdraws. If there is no brick-and-mortar branch to go to, you will want to know how to access your funds. When making a withdraw make sure you know how long it will take to have your funds available for you to use.
What can I use a High Yield Savings Account for?
Having a HYS account is a great place to save money and keeping it separate from your everyday spending funds. You can use a HYS account for different financial goals and expenses such as:
- An emergency fund
- Vacation (lodging, flights, rental car, meals)
- Home renovations or repairs
- Graduation or wedding
- New car
- Education cost and living expenses (Consider a 529 plan for long-term education savings)
- Down payment on a home
How do I choose a High Yield Savings Account?
There are many factors to consider to figuring out which one will align with your financial goals the best.
Some things to keep in mind are:
Interest Rate – Earning a higher interest rate can help you maximize your savings more quickly over a standard savings account.
Deposit requirements – This can very between banks so do research to know what the requirements are and if what you plan to open the account with meets or exceeds the minimum.
Minimum balance requirements – Similar to the opening deposit amount, be aware of the minimum daily balance requirements of the account to avoid monthly service fees.
Account Fees – If fees are high this can cancel out any interest you are earning, so be aware of any monthly fees that the account may charge regardless of minimum balances. Some banks will have a standard monthly maintenance fee and others may way the fee if a minimum balance is kept.
Options for High Yield Savings Accounts
There are many high yield savings accounts available, so make sure do you research to know which one aligns with your needs and goals. Here are a couple links to check out to research different accounts and what they are currently offering for interest rates as well as minimums for opening and maintaining the account.
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