You’re looking for a good bank account to put your savings in, and you’ve come across an option called a high-yield savings account. A high-yield savings account is a valuable option for everyday users who want to increase their savings without taking on investment risk. Users often store their net of financial safety such as emergency savings and emergency funds in these accounts. should i do the same?
Plus, you can earn more than 10 times the national average, even though the pandemic has cut interest rates on savings accounts to almost half of what they were a year ago.
The Biggest Advantages of a High Yield Savings Account
In fact, even if you haven’t started your emergency fund yet, it’s still important to open a high-yield savings account. Read ahead for the biggest benefits that come with a high-yield savings account.
high interest rate
One of the biggest advantages of high-yield savings accounts is that they usually offer higher interest rates than regular savings accounts. A standard savings account has a set interest rate that helps your deposit grow over time, but that rate can be very low. Based on that rate, it’s unlikely we’ll see much return. Average Annual Yield (APY) is typically less than 1%.
The annual yields of high-yield savings accounts are much higher than that. APY is 2-5%. Therefore, depositing into this type of account may help your deposit grow faster.
Important note about high interest rates
Online-only banks (sometimes called “neobanks”) tend to offer higher interest rates on higher-yielding savings accounts than brick-and-mortar banks. why? Online-only banks can afford to offer these higher rates to their customers as they compete with lower overheads. There is no need to staff, maintain and protect physical bank branches.
Another benefit of a high yield savings account is easy access to your balance. You can access any ATM in the network or visit one of your bank’s branches and withdraw your savings from your account at will. You can also freely digitally transfer savings from your account to move needed funds to your checking account. Funds are liquid.
Liquidity is not an advantage offered by all interest-bearing savings tools. For example, a Certificate of Deposit (CD) is a savings account with an annual yield of 2-5%. CDs have the same growth potential as high-yield savings accounts, but with one big problem. Depending on the length of your CD, you can wait months or years before your account expires and you can freely access your balance. Attempting to access funds prior to their maturity date may result in early withdrawal penalties.
Liquidity is key when it comes to emergency funds. You need to be able to grab your savings quickly. If you keep your savings in accounts that you won’t be able to access when disaster strikes, you may be in the same position as someone who has no emergency savings at all.You may need to consider alternative payment methods such as online loan Helps manage emergencies as quickly as possible.
Online loans can be an effective solution when you don’t have access to your savings. As long as you meet the loan requirements, you can complete and submit the application online. Get your personal loan approved in a short period of time. If approved, you can use borrowed funds to cover emergency expenses and then follow a stable repayment plan.
You can avoid this whole situation by depositing your emergency funds in a readily accessible savings account, such as a high-yield savings account.
Important notes regarding account withdrawals
High-yield savings accounts have a limited number of withdrawals and transfers per month. These withdrawals/transfers can be made 6 times a month with no fees. These limits are intended to discourage you from making unnecessary withdrawals and undermining your savings goals.
What if I need to exceed this number of withdrawals/transfers? Don’t panic. Your savings are still liquid. You can withdraw and send money as usual — your money is never locked out. Banks or credit unions only charge a withdrawal fee if you exceed this limit.
Never worry about losing money deposited in your high-yield savings account. As long as you have an account with an FDIC-insured bank, your savings are safe even if the bank fails.
What if the account is through a credit union instead of a bank? Your savings should still be safe. Deposits are protected by the National Credit Union Share Insurance Fund as long as the credit union has federal insurance.
Notes on deposit insurance
Your deposit is guaranteed up to a certain amount. Both the FDIC and NCUSIF guarantee deposits up to $250,000. A $500,000 deposit can be covered if you have a joint account. So this coverage is limited, but the limit is very high.
As you can see, high-yield savings accounts have great benefits, especially for emergency funds. It may be time to open your own.
Also read Benefits of saving money for a deeper dive into the topic. Whether you’re building an emergency fund or saving for something urgent like a family vacation, a high-yield savings account is usually an important financial tool. You can get a higher rate of return than a regular bank account and your money is safe and always available.