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Today we’re talking about the high yield savings account.
Yes, it acts just like a regular savings account. But way cooler because it actually pays you just for keeping money in your account.
In this article we’ll be answering the following questions:
What is a high yield savings account?
Is a high yield savings account right for you?
What should you look for in a high yield savings account?
What are some of the best high yield savings accounts?
You’re in for a treat today. So, buckle up and let’s get started!
What is a high yield savings account?
So, what is a high yield savings account?
A high yield savings account is a savings account that pays 10 to 25 times the average of a normal savings account.
A standard savings account often pays about a 0.01% annual percentage yield (APY). While a high yield savings account can pay about a 0.40% APY.
Let’s use an example to give you a better idea of what that means.
Example:
Let’s say you want to open a savings account and you’re choosing between Bank A and Bank B.
Bank A offers a standard savings account with an APY of 0.01%.
While Bank B offers a high-yield savings account with an APY of 0.40%.
Now let’s do some simple math. Let’s say you put $10,000 into both banks. After a 12 month period, Bank A nets you $10 while Bank B nets you $40.
Bank B is easily the winner of the two because it offers a higher APY.
In short, the biggest difference between a high yield savings account and an average savings account is the APY.
Now, you might be thinking “okay but there isn’t much of a difference between $10 and $40.”
Let’s dive a little deeper into the benefits of the high yield savings account.
Is a high yield savings account right for you?
So, a high yield savings account gives you a higher APY than a regular savings account. But why is that a good thing? Especially when inflation rates are higher than ever.
Let’s go over the benefits together.
You can use a high yield savings account to save for various long-term and even short-term financial needs. Some include:
Starting a business
Buying a home
College
A wedding
Vacations
Emergency fund
Medical expenses
If you continue to fund your high yield savings account every month, your savings will compound over time because of interest. You’re also able to withdraw funds from your high yield savings account up to 6 times per month without any penalty. Which makes it accessible in case of emergencies.
Note that a high yield savings account is not the best route for building a retirement fund. If you’re planning for retirement, you’ll want to consider a tax-advantaged retirement account like a Roth IRA.
Overall, a high yield savings account does not need to be the bulk of your financial plan. Instead, it can be used to complement your other savings and investment vehicles. With a high yield savings account, you can optimize the growth of your savings. Even if it’s only by a couple of small percentage points as this will compound over time.
What should you look for in a high yield savings account?
Interest rate and APY. This is the reason you’re here in the first place. You can get an idea of what high-yield savings accounts are your best options as soon as you research a bank and their APY.
Deposit requirements. Different banks have different deposit requirements when opening your account. Some banks require no minimum amount while others require thousands of dollars just to make an account.
Fees. Yes, you’ll have to deal with fees. You’ll want to make sure your earnings are worth the fees, so do your research on the bank or credit union so you don’t deal with any hidden fees.
Minimum balance requirement. Figure out how much money you’re required to keep in the account. You may incur a fee if your funds fall below a certain threshold.
Access. Are there withdrawal limits? Can you use an ATM card to withdraw? Can you withdraw straight into your debit account?
Customer service. Even if you don’t ever need to talk to your bank on the phone, it’s good to know that they have good customer service if you ever need it. Research reviews on your bank’s customer service qualities so you get an idea of how they handle things.
Online and mobile banking. Does the bank or credit union use an app? In this day and age, mobile banking helps with convenience and ease when you want to make withdrawals and deposits.
FDIC insured. You’ll want to make sure your bank is FDIC insured. This means that your deposits are federally insured in case of bank failure or theft. Most mainstream banks are FDIC insured, but it's still important to be aware of this.
Opening a high yield savings account can be a pretty quick and easy process if you know what to look for. Use the features above as a guide in your decision-making process.
What are some high yield savings accounts?
Some reputable high-yield savings accounts:
Go2Bank
APY - 1.00%
$0 minimum to open an account
Marcus by Goldman Sachs Online Savings account -
APY - 0.50%
$0 minimum balance
American Express high yield savings account
APY - 0.55%
$1 minimum balance
Discover online savings
APY - 0.50%
$0 minimum balance
Alliant
APY - 0.55%
$100 minimum balance
Axos Bank
APY - 0.61%
No minimum to open an account
What now?
At this point, you should have a solid understanding of what a high yield savings accounts is and how you can get started with one today.
Remember, the high yield savings account does not need to be the core of your financial plans. It serves best if it complements your financial goals instead. Take what you’ve learned today and begin your research on high yield savings accounts. You may find that this strategy matches your goals. You may even decide that a high yield savings account is not for you.
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