High-yield savings accounts are a special kind of savings account that generally pay 20–25 times more than the average national rate on a conventional savings account.
A new type of “high-yield savings accounts” has been introduced as a result of the emergence of internet-only banks and traditional banks that have opened their doors to customers nationwide via online account opening.
In fact, a high-yield savings account still makes great sense if you haven’t established an emergency fund or are working to meet a certain financial milestone within the next two years.
Here are the benefits and drawbacks of having a high-yield savings account for people wishing to build their money:
High-yield savings accounts’ benefits
Everybody has to have some cash saved up for unforeseen events and short-term financial objectives. And a high-yield savings account is the best location to keep that money.
The following are a few benefits of opening a high-yield account:
- This yield surpasses the 0.06% return you’d get if you kept your money in a conventional bank savings account, despite the fact that interest rates are now hovering around 1%.
- If you ever need to access the funds, they are available in your high-yield savings account.
- The finest high-yield savings accounts have minimal (or no) minimum balance and deposit requirements, as well as no monthly fees.
- Most online savings accounts with the best rates of return make it simple to manage your money on the go with mobile banking apps.
- Money can be moved with ease from a high-yield savings account to other bank accounts.
High-yield savings accounts’ drawbacks
While investing in high-yield savings accounts has many benefits, you should be aware of some drawbacks as well.
Here are a few drawbacks:
- While a bank may promote a high annual percentage yield (APY) when you apply, it probably won’t remain indefinitely because interest rates on high-yield savings accounts are flexible and can change at any time.
- High-yield deposits offer daily growth of your money and minimal risk, but long-term wealth growth is not best achieved through them. It is preferable to make investments rather than continue to add money to your savings account because the rate of inflation may be higher than the interest you earn over time.
- You can access your savings, but only for a limited amount of withdrawals before incurring charges. The number of times you can withdraw money from an online savings account each month is limited by the federal withdrawal cap. Holders of high-yield savings accounts are only permitted to take money out of their accounts up to six times a month without incurring a penalty fee or running the risk of having their accounts closed. This includes electronic withdrawals, checks, and wire transfers.
- The majority of banks that offer high-yield savings accounts online don’t have physical locations.
- While some online banks do provide ATM cards for quick withdrawals, not all savings accounts do.
- You can transfer money between banks, but it could take a while—typically 24 to 48 hours.
A High-Yield Savings Account’s Features
It’s always a good idea to shop around for the best deals, whether you’re looking for a high-yield account at a new institution or are fortunate enough to have one offered by your existing bank. In particular, if you maintain a sizable balance in savings, differences in interest rates and fees might accumulate over time. What to look for and compare is as follows:
Needs a Minimum Balance
How much money must you continue to maintain in the account? Because falling short of it may result in charges or render the anticipated interest rate invalid, you should always feel confident that you are meeting the minimum requirement.
Fees
Does this account have any fees assessed by the bank or credit union? If so, how can you prevent that (for example, by constantly having your balance over the required minimum)? What is the bank’s penalty if you withdraw more than the six withdrawals per month that are legally permitted?
Interest Rate
How much interest is now being paid on the account? Is it a regular rate or a special introductory rate? Rates on savings accounts are typically flexible and subject to change.
However, some accounts will state that the pricing that is now being promoted is only valid for a limited time. If there are minimum or maximum balance requirements for receiving the promotional rate, that is another thing to consider.
Deposit Alternatives
Does the bank provide a mobile check deposit app for smartphones if you anticipate needing to deposit checks into the account? If not, will you be able to mail cheques in or use an ATM to deposit them?
Compound Method
The frequency of interest compounding can be specified by banks and might range from daily to monthly to quarterly to annual. Although frequent compounding will potentially raise your take-home income, the compounding component will have been taken into account if you continue to compare accounts by annual percentage yield (APY) rather than annual interest rate.
Links to Brokerage Accounts and/or Other Banks
Will the bank permit you to link your high-yield savings account to any other deposit accounts you have at other financial institutions or brokerages? Is it prohibited to link more than one account, and is there a waiting period before adding a new account during which it cannot be changed from the original linked account?
Getting to Your Money
What other choices, if any, are there for withdrawing money? Can you use an ATM card to withdraw money from savings?
Please read: HOW TO GET THE BEST PESO VALUE OF YOUR DOLLAR
Conclusion
With principle protection, the security of government insurance, and a yield that is higher than a standard savings account but lower than you might earn from riskier investments, a high-yield savings account can be a helpful middle ground for your money.
Always consider how one or more high-yield accounts can best support your financial objectives and situation. Then, do your research to pick an account that will optimize your earnings while also enabling you to avoid costs and placing unneeded limits.
