Guide to High-Yield Savings Accounts
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What Are High-Yield Savings Accounts?
How Do High-Yield Savings Accounts Work?
Pros and Cons of High-Yield Savings Accounts
Higher interest rates APYs offered by high-yield savings accounts can be 20 to 25 times higher than the APYs offered by traditional savings accounts. This allows your money to grow faster. Low risk The Federal Deposit Insurance Corporation (FDIC) or National Credit Union Association (NCUA) insure high-yield savings accounts in the same way as traditional savings. This means you’ll receive up to $250,000 per account holder, per institution, should the bank or credit union fail. Low costs High-yield savings accounts are typically offered by online banks, which generally don’t charge monthly maintenance fees. This is due to the fact that they have lower overhead costs than brick-and-mortar banks, and will often pass those savings on to their customers in the form of low fees (and better rates). Ideal for short-term savings goals High-yield savings accounts can be a good way to save for things you want to pay for in the next few months to a year, such as a vacation or wedding. If you were to put this money into a risky investment like stocks, there’s a chance you could lose money in the short term.
Interest rates fluctuate The APY that a high-yield savings account offers when you sign up can change at any time. These rates are variable and often go up or down in accordance with the Federal Reserve changing its benchmark interest rate. More requirements High-yield savings accounts may have stricter requirements than traditional savings accounts. Some high-interest savings may require a relatively large deposit to open an account. They may also require you keep a minimum balance or risk incurring fees or losing the higher rate. Time lag on withdrawals If your high-yield savings account is not at the same institution as your checking account, transfers can take a day or two to complete. Not ideal for long-term goals Although high-yield savings accounts have high yields compared with standard savings accounts, they don’t pay enough interest to hit long-term savings goals. If you have a long-term goal like retirement and can handle some volatility, investments like stocks or mutual funds may be a better choice.
6 Things to Look for in a High-Yield Savings Account
1. Interest Rate
3. Minimum Initial Deposit
4. Minimum Balance Requirement
5. Access to Your Money
6. Compounding Method
Opening a High-Yield Savings Account
3 Money Tips
Frequently Asked Questions
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