Each of us has some source of traditional savings. However, with the increasing graph of daily expenses, it is essential to increase the earnings. In this context, a high-yield savings account can give you some ray of hope. It is not similar to a traditional savings account and typically returns twenty to twenty-five times the national average than of a normal savings account. The idea of a high-yield savings account bloomed from the advent of core banking, where transactions between two different bank accounts are a click away on the internet. As a result, there is skyrocketing competition on the savings rate, and ultimately, it has created a new category: a high-yield savings account.
But why do you go for a high-yield savings account? Simply because the difference is significant between high-yield savings account rates and the normal interest rate. As a result, you can increase your earnings significantly. For example, if you have $4,000 in savings, whereas the national average is 0.08 percent annual percentage yield, it would return $3.2 in a year. If you instead put that same $4,000 at an interest rate of 2 percent, you’d earn $80.
Hence for this type of account, the key takeaways are –
- The interest rates of high-yield savings accounts can be twenty to twenty-five times higher than that of traditional savings accounts.
- You may open the account in your existing bank. However, the highest rates are primarily available in the banks with online facilities.
- With the initiative of core banking, you can easily transfer electronically between a high-yield savings account and your existing account, even if they are at different banks.
- Before proceeding with the high-yield savings account, you need to consider several factors like initial interest rates, deposit requirements, minimum balance, and any applicable account fees.
Here it is necessary to mention that, unlike traditional banks, high-yield savings account holding banks do not offer all your banking needs. They may limit their offering to certain limited features or no other products. Many of them don’t offer traditional accounts, even some of them don’t offer ATM cards. This is because they make it mandated all transactions via electronic bank transfer.
Related post – 7 financial goals you need to achieve before age 40
What should you look for in a High-Yield Savings Account
These accounts are a special type of account, so when you invest in them, it is necessary to survey specific criteria across the marketplace. No matter whether you’re opening a high-yield account at another bank —or privileged enough to have one as an offer at your existing bank—it’s always wise to validate specific options across the marketplace. Not to mention, differences in fees and interest rates for the high-yield savings account can add up over time. This is especially applicable if you’re keeping a comparatively large balance in savings.
Here are the criteria that must be compared and look for:
High-yield interest Rate
The first thing you need to look for is the interest rate that the bank is offering. Is it their standard rate or just a promotional rate? What is the balance threshold for the account? Is there any maximum or minimum limit? As per the government rule, the savings account interest rate can change at any point in time. So it is necessary to know whether the high-yield savings account interest rate is limited for a promotional period?
Initial Deposit amount
What is the amount that you need to deposit for opening a high-yield savings account? Are you comfortable investing that amount of money? And what is the risk associated with it?
Minimum Balance Requirement
To continue the high-yield savings account, what is the minimum balance you need to keep in the account? It would be best if you remembered that you always have to maintain that threshold amount, and you must be comfortable doing that. In case you fall below that amount, it can incur extra fees and even invalidate the expected interest rate.
Extra Fees
Does the bank charge any fees on a high-yield savings account? So, if you always want to keep your balance above the threshold limit, what are the ways to do that? Also, if you exceed the maximum withdrawals per month, then the applicable fees do you need to pay for the violation?
Can you link to other bank accounts?
You need to know whether you can perform online transactions between the high-yield savings account and other deposit accounts at other banks? Are there any restrictions on multiple accounts linkage, or do you need to wait for a certain period?
Withdrawing the amount
The most important part is to know how you can withdraw your funds? Is it possible via an ATM card? Or is there any additional option to do that?
Options for deposits
You need to know how to deposit the amount. Does it via any smartphone app or mail-in checks? Or do you need to choose ATM option?
Compounding tenure
Banks can compound the interest rate as per their own norms. It could be based on a certain period, daily, monthly, quarterly, semiannually, or annually. While frequent compounding increases your take-home yield, an annual percentage yield (APY) will already take into account the compounding factor.
Opening a High-Yield Savings Account
If your current bank has a high-yield savings account facility, then you are lucky enough and can open it in the existing bank, provided you must survey beforehand. You can do it on your own through an online banking portal. Since you are already a customer of the bank, your personal information is available to the bank. So it becomes easy to open a new account.
However, if you are opening an account in a new bank, sometimes it becomes overly complicated. You can open it online or manually with your identity proof: your driver’s license, social security number, etc., depending on the country. Besides, you need to keep your primary account number in hand to streamline the application process.
Final Verdict
You can consider high-yield savings account as a useful source for your money. It offers as an additional part of the protection of your main balance part or principal amount. Through a high-yield savings account, you can earn higher than a regular savings account. But before investing in it, be sure to think about how your high-yield accounts can best serve your financial objectives. Do proper analysis to find a high-yield account that can increase your earnings at the same time while avoiding fees without imposing restrictions.