A high-yield savings account earns you a higher amount of money than a conventional savings account. Although this type of savings account is considered new to the banking field, a high yield online savings account is able to attract an interest from the customers.
Higher interest rates are the most tantalizing benefit of a high-yield savings account, making it possible to earn you larger balance. Having that said, it has several downsides like variable APYs and limited withdrawals. Take a closer look at the ins and outs of a high yield savings account.
What Is a High Yield Online Savings Account?
A high-yield savings account, also known as a high-interest savings account, refers to a savings account that pays higher-than-average national interest rates. The rates can be as much as ten times the typical savings accounts, creating a skyrocketing popularity in the banking world.
How can a high-yield savings account offer a stronger APY than a conventional savings account? The most obvious reason is that a high yield online savings account is a product offered by online banks. While brick-and-mortar banks account for overhead costs, this is not the case with online banks.
Online banks allocate their money to provide customers with a higher APY, one of the biggest factors in choosing a high-yield savings account over typical savings. However, some banks may apply minimum balance requirements, monthly fees, and minimum deposits.
High Yield Savings Account Benefits
High-yield savings accounts offer tons of benefits. In addition to high yield online savings interest rate that is attractive, you may expect these good things:
1. Easy withdrawal
A high-yield savings account is not like a certificate of deposit that requires you to pay a penalty if you withdraw the money before the specified term. Instead, it offers easy withdrawal that allows you to use your money at any time without penalty.
This makes a high-yield savings account a great choice for short to medium-term financial goals such as vacation funding, emergency funds, and house down payment. However, some providers limit the number of withdrawals per month.
2. High Level of Safety
High-yield savings accounts are relatively safer than stocks. Stock investment may be a lucrative field to grow your money faster but you are at a high risk of losing all your money, especially if you take a wrong move in a stock market.
High yield online savings account protects all your money and makes it grow without a risk of losing. Most of them are FDIC-insured, giving you some peace of mind so you can focus on other things that matter to achieve your financial goals.
3. Compound Interest
Most high-yield savings accounts compound interest daily, which means your balance can grow faster. This explains why customers with a large balance tend to choose this type of savings account than conventional ones.
How to Choose the Best High-Yield Savings Account
The increasing popularity of high-yield savings accounts has driven online and offline banks to offer this savings account. Consider these things when you are looking for the best high-yield savings accounts.
1. Annual Percentage Yield
Your main objective in choosing a high-yield savings account is to earn high-interest rates and APYs. Looking at the interest rate and APY is essential before you choose a savings account. Read the term and figure out whether the APY is temporary or permanent.
2. Availability
Checking for availability is crucial when it comes to choosing a high-yield savings account. Not every high-interest savings account is available throughout the United States. For this reason, be sure to check if your area supports opening an account.
3. Fees
One of the main problems of keeping your money in a bank is the monthly maintenance fee. If you want to make your money grow quickly, find a high yield online savings account that does not charge a monthly maintenance fee.
4. Minimum Deposits
Some online banks have minimum deposits to open high-yield savings accounts while the rest do not apply this requirement. It must be your initial consideration when you are looking for a savings account.
5. Withdrawal Rules
Money withdrawal is variable, which means the banks can change the rules depending on the situation. Most high yield savings accounts allow customers to make up to six monthly withdrawals but some banks allow up to 6 withdrawals per month.
How to Create a High Yield Savings Account
If you have chosen a bank that offers a high-yield savings account, opening a new account is relatively easy. Most online banks require a simple procedure with a little personal information needed for the verification process. The best of all, everything can be accessed online for your ultimate convenience.
You will need to fill out an electronic application with your personal information such as name, address, and ID card number. Be sure to prepare documents like driver’s license, bank account information, and Social Security number at hand.
Each bank may have different application procedures and requirements. Contact your bank and get to know essential information including deposit requirements, minimum balance, interest rates, fees, and procedures.
How to Use a High Yield Savings Account
A high-yield savings account is ideally addressed to cover a part of your financial portfolio. For example, you will use it as an emergency fund or vacation fund. Depending on your goals, you need to consider an investment strategy that fits your financial situation.
Even if you do not have a specific goal, it is possible to create a high-yield savings account only to keep your money. While traditional savings accounts earn you very low interest, moving your funds into a high-yield savings account helps grow your balance.
A lot of banks allow you to have multiple savings accounts and some of them offer personalized nicknames like house fund, car fund, or family vacation. Having more than one account may help you organize your financial situation and progress toward your goals.
A high yield online savings can be an ideal solution to keep your money in the short term and increase its number in a relatively short time. With higher interest rates, flexible withdrawal, and a high safety level, it can help you achieve your financial goal.