A high-yield saving account is a saving account that offers 20 to 25 times more interest rate than the national average of standard saving accounts. People usually have high-yield saving accounts with the same bank they have current checking accounts, making it convenient to transfer funds across accounts.
Almost all the traditional banks and online operating banks have opened doors to features such as online account opening, which results in skyrocketed saving rates, and new types of saving accounts were created called “High yield saving accounts.”
The difference between the interest rate of traditional saving accounts and the interest rate of high-yield saving accounts is significantly higher. E.g., as per the national average interest rate of 0.10% APY, you would get $5 per year over the $5000 of savings. On the other hand, you would earn $100 in a year with 2% of the same amount with a high-yield saving account.
What Is a High-Yield Savings Account?
The trade-off for higher interest rates with a high-yield savings account is that you may have to maintain separate accounts for savings and checking with different financial institutes. But nowadays, fund transfers can be done within seconds making electronic transfers between banks more convenient for maintaining high-yield saving accounts.
The financial institutions offering high-yield savings accounts may have limited features or not offer other products, unlike traditional brick-and-mortar banks that provide a comprehensive banking experience. May banks do not offer to check accounts by default, or some financial institutes provide ATM cards or need cash flow into saving accounts through electronic bank transfers only. Quite a few banks provide the feature of using mobile check deposits.
One thing that is common and important about traditional saving accounts and high-yield saving accounts is that, in both cases, is security. Banks are insured by the Federal Deposit Insurance Corporation (FDIC) and credit union failures from National Credit Union Association (NCUA), keeping your funds secured and safe in case of bank failure.
Note: Before opening an account with any bank institute, always make sure to look for an FDIC or NCUA membership. Usually, banks have logos mentioned.
If you often do fund transfers, it is important to remember that Federal regulations are limited for withdrawals are six per month, regardless of whether the account is a traditional or high-yield account.
If you are thinking of getting a high-yield saving account, then it’s worth learning how to find and open a high-yield account and enjoy the benefits of a high-interest rate.
Deciding How You’ll Use a High-Yield Savings Account?
A high-yield savings account should only be a component of your overall financial portfolio.
To effectively utilize the account, consider how it fits into your overall savings and investment strategies and determine how much cash you should keep liquid for your specific needs.
For instance, is the savings account meant to serve as an emergency fund? In this situation, it is recommended to have three to six months’ worth of living expenses as saving by financial experts.
If you are using high-yield accounts to save for upcoming years’ big purchases, then It is smart not to put your funds into an investment that could lose its value over time.
Hence, from time to time, adding funds to a high-paying saving account can help you build and protect your principal while at the same time earning a high-interest rate on your savings.
The interest rate on checking accounts are so minimal or zero that adding extra funds into your high-interest saving account that you don’t need in day-to-day life transactions can benefit you with interest returns that will be missed otherwise.
It is also possible to work towards saving goals parallel by opening high-yield saving accounts at multiple locations.
Nowadays, most financial institutes allow you to open multiple savings accounts based on your personalized goals, such as saving for car funds or a honeymoon vacation. Perhaps you can also open a high-yield saving account at more than one financial institution as you wish.
This has the benefit of easy progress tracking of each account toward a goal, saving more money, and using it as a backup in an emergency.
What to Look for in a High-Yield Savings Account?
When you are planning to open a high-yield saving account or come across an attractive offer at your current bank, it is always a good idea to compare your options in the market because relatively large saving amounts can have variable interest rates, and fees can add up over time.
BeBraveBanking has put together a few points for you to consider and compare as follows:
Interest Rate
The first thing to check is how much interest rate your current account pays. Are you currently getting a standard rate or just getting the benefit of an introductory promotional rate? Introductory promotional rates are subject to change and are only fixed to a certain time period, as mentioned during the promotion. Saving account interest rates are subject to change based on the market, but this doesn’t happen very often. Also, keeping track of minimum and maximum balance thresholds is also important for earning a promotional interest rate.
Initial Deposit amount requirements
How large is the amount required to be deposited at the time of opening a high-yield saving account? Are you comfortable transferring the required amount? Make sure to avoid any unseen charges and keep track of the number of times withdrawals are done from the checking account.
Minimum Balance Required
High interest saving account comes with minimum balance requirements. Balance falling below this threshold amount is subject to fees or charges and results in invalidating the interest rate you’re expecting.
Fees, charges and cost
Does the bank charge any fees on this saving account? In what case will you be fined or charged? For example, sometimes, if your account balance goes below the minimum threshold, the bank will charge you. Also, if you cross the limit of 6 withdrawals per month, what would happen?
Linking other bank checking accounts or Brokerage Accounts
Is there a feature available to connect your high-yield saving account to other banks’ checking accounts? Is a fund transfer feature available? Are there any charges for it? What are the limitations of connecting multiple accounts and disconnecting existing linked accounts?
Accessing Your Money
What options are available to withdraw the amount from the account, such as an ATM card or only electronically?
Available Deposit Options
Does the bank offer features such as mobile check deposits through the mobile app? Or can you deposit the amount through an ATM?
Compounding Method
Every bank specifies at what frequency the interest will be compounded. It can be daily, monthly, quarterly or annually. Increased compounding frequency may result in a higher yield, but comparing accounts using APY accounts for compounding.
When evaluating savings accounts, using APY instead of annual interest rate factors in compounding and eliminates the need to compare compounding frequencies.
How to Open a High-Yield Savings Account?
If your current bank has a competitive high-yield saving account offer available, then the process of opening a new account would be really smooth.
Since you are already a customer of a financial institute, you would be already verified, and with just a little more information in the online banking portal, you will be able to open a saving account.
Opening a savings account at a new institution requires some additional steps, but they are quite simple.
Most high-yield savings accounts can be opened online, so give yourself about 15 minutes to complete the electronic application on your computer.
To expedite the high-yield saving account application procedure, have your driver’s license, real id, Social Security Number, and bank account information ready.
How to find a high-yield savings account?
Usually, online operating banks offer higher rates and High yield saving account promotions. Start by checking with your current bank.
What are the main things to look at in a high-yield account?
Thoroughly review and research savings accounts by comparing multiple factors such as initial deposit, interest rates, minimum balance, fees, interbank links, access to funds, deposit options, and compounding method.
The Bottom Line
With amazing benefits such as protection for principal, federal insurance safety, and higher interest rates than the national average, a high-yielding saving account plays a middle ground. With your personal finance goals in mind, make sure to plan ahead for your multiple high-yield accounts.
Conduct research to find a savings account that maximizes your earnings and avoids fees while also accommodating your needs. Research to identify a savings account that offers maximum earnings, minimal fees, and meets your requirements.