Whether you’re saving up for a rainy day or a tropical vacation, a high-yield savings account can help your money grow fast, unlike your favorite houseplant. Let’s face it — unless you’re some sort of plant whisperer, houseplants have a habit of not making it past a few months. But with a high-yield savings account, you can sit back, relax, and watch your money grow without worrying about accidentally overwatering it or forgetting to give it sunlight. Read on to learn how a high-yield savings account can maximize your money with little effort on your part.
What are high-yield savings accounts?
A high-yield savings account, sometimes called a high-interest account, is a type of savings account that provides above-average interest rates on deposited funds. Generally, these accounts offer notably higher interest rates than the national average of a regular or traditional savings account.
How does a high-yield savings account work?
High-yield savings accounts use compound interest to help your savings grow.
Compound interest is the process of earning interest not just on the original deposit amount but also on the interest that the account has already earned. It means that your savings can grow exponentially over time as the initial deposit amount and any earned interest will continue to earn further interest.
However, it’s important to note that high-yield savings accounts may come with certain restrictions, such as withdrawal limits or minimum deposit requirements. Some banks may limit the number of times you can withdraw money from the account per month, and others may require a minimum balance or charge fees if you don’t meet certain requirements. Be sure to read the account terms carefully to understand any limitations or fees associated with the account.
1. Interest rates
For those with a little bit of savings, a high-yield savings account can make a world of difference. Instead of earning the mere 0.42% on your $500 deposited in a standard savings account, you could be earning more with just a few clicks.
With some smart budgeting and organization, you can use high-yield savings to increase your wealth much faster than ever before.
2. Minimum balance requirements
The minimum balance you need to open a high-yield savings account varies from bank to bank. Some banks may require a minimum balance of $1,000 or more to open the account, while others may have no minimum balance requirement at all. Research different banks and their specific requirements to find an account that best fits your needs.
3. FDIC insured
Federal Deposit Insurance Corporation (FDIC) is an independent U.S. government agency that was created in 1933 to provide deposit insurance to protect depositors in case a bank fails.
FDIC insurance is important for high-yield savings accounts because it protects your deposits in the event that the bank holding your account fails. FDIC insurance covers up to $250,000 per depositor, per account ownership category, in the event of a bank failure. If the bank holding your high-yield savings account were to fail, your deposits up to $250,000 would be protected and you would be able to recover your funds.
Having FDIC insurance for your high-yield savings account provides peace of mind and an added layer of protection for your savings.
4. Withdrawal limitations
Unlike a Certificate of Deposit (CD), your money isn’t locked in with a high-yield savings account. However, high-interest savings may have withdrawal limits in place. Some accounts restrict the amount of withdrawals you can do per month. If you exceed this limit, the bank may charge you a fee.
Pros and cons of high-yield savings accounts
A high-yield savings account can provide significant benefits to those looking to grow their savings. Many bank accounts offer generous interest rates and FDIC insurance, ensuring that your money is safe and secure. Since these accounts come with guaranteed returns, you can be sure that your money will appreciate in value over time.
However, there are a few drawbacks of high-yield savings accounts. Depending on the account, you may be required to make a higher minimum deposit than a traditional savings account. These deposits may also come with restrictions on how much money you are allowed to withdraw at any given time – making it difficult for those who need quick access to their funds.
The interest rates offered on high-yield savings accounts may fluctuate depending on current market conditions. While an account may advertise generous returns, the actual rate of return could be lower than expected if market forces change.
How to choose a high-yield savings account
When choosing a high-yield savings account, it’s important to take your time and consider your options carefully. Not all high-yield accounts are equal. A bad user experience, limited features, and high fees can minimize the impact of a competitive interest rate. There are several factors to keep in mind in order to find the best account for your money.
1. Online vs. traditional bank
Firstly, you should compare online savings accounts to traditional ones offered by brick-and-mortar banks. Online banks generally provide higher interest rates on savings accounts compared to physical banks. This is because online banks have lower expenses since they don’t have physical branches to maintain. As a result, they can offer higher interest rates to their customers by passing on the savings from their reduced operating costs.
While banking virtually may require some adjustment, it’s important to note that money deposited in an online bank is secure as long as the bank isFDIC insured. FDIC insurance is provided by the Federal Deposit Insurance Corporation and ensures that your deposits are protected up to $250,000 in case the bank experiences financial difficulties and closes down. Most high-yield savings accounts are FDIC-insured, providing an added layer of security for your money.
2. Minimum deposit requirement
Some savings accounts have excessive minimum deposit requirements that make them inaccessible. Not everyone has the financial flexibility to store $2,500 into a high-yield savings account. Some people may need that money to cover everyday expenses. High-yield savings accounts with more generous deposit requirements and no account balance minimums give you more flexibility.
3. Access to your cash
Some high-yield savings accounts require that you keep the money in your account for at least a year to receive the full interest payment. These accounts, often known as certificates of deposit, can generate risk-free returns. However, you may incur a penalty if you have to withdraw funds early. A high-yield savings account will typically give you quick and penalty-free access to your cash in case you have to use it for an emergency expense. A high interest rate may not look as impressive if you cannot access your principal for 5-10 years and need it for an urgent expense.
4. Interest rate offered
The higher the APY, the faster your savings will grow.
When you’re looking for a savings account that will help your money grow, it’s important to find one with a higher APY than the average standard savings account. Interest rates for these accounts can vary widely depending on the bank and type of account. Look for accounts with interest rates that are consistently higher than the national average for savings accounts.
Keep in mind that the APYs advertised for high-yield savings accounts can change over time, depending on how well the economy is doing.
If everything else is equal, a high-yield savings account with a 4% APY is more beneficial than a high-yield savings account with a 3% APY.
5. Fees and minimums
Nobody wants to pay fees just to keep their money in a bank account. That’s why it’s important to find a savings account that doesn’t charge you for simply having your money there.
Some high-yield savings accounts may charge monthly maintenance fees, account opening minimum deposit or require a minimum balance to be maintained to avoid fees. Make sure to read the account terms and fine print carefully and compare different options to find one that suits your financial situation.
When searching for the right savings account, prioritize a high-yield option that also comes with zero recurring fees, minimum deposit requirements, and balance obligations. This way, you can avoid any extra expenses. If a high-yield savings account has too many fees, you may be better off finding another savings account.
6. Bank reputation and customer service
Research the reputation of the bank offering the high-yield savings account and the quality of its customer service. Look for reviews and ratings from other customers and consider how responsive and helpful the bank’s customer service is. A good reputation and strong customer service can give you peace of mind when entrusting your money to a bank.
Be sure to read our Blog on Which Savings Accounts Could Earn You the Most Money.
MoneyLion offers a convenient Marketplace to compare high-yield savings accounts from our trusted partners** that could help grow your money.
Maximize your savings with high-yield accounts!
A high-yield savings account is an excellent option for those who want to grow their money without locking it away for a specific period. With some research and careful consideration of your financial goals and needs, you can find the perfect high-yield savings account to help your money thrive and bloom. Remember, the key to success is to choose an account with a high-interest rate and manageable withdrawal limits that fit your budget and long-term savings goals. So go ahead, take the time to explore your options and watch your savings grow like a well-tended houseplant.
Use our free savings calculator* to estimate your savings!
FAQ
What are the benefits of a high-yield savings account?
The main benefit of a high-yield savings account is that it can help you earn more interest on your money than a traditional savings account.
Are there any downsides to a high-yield savings account?
The downside is that the rates can fluctuate depending on the market, so you may not always get the best return.
How do I find the best high-yield savings account?
To find the best high-yield savings account, you should compare different products to see which one offers the highest rate and fits your needs. Be sure to read through all the fine details in each product’s terms and conditions before committing to an account.
