There is more than one type of savings account, but you may not be familiar with a high-yield savings account. Read on to learn more about these accounts, including how to select one.
What Is a High-Yield Savings Account?
You can probably guess that this is a type of savings account that has a higher yield or interest rate than typical savings accounts. They’re also called high-interest-rate savings accounts.
Example Interest Rates
To put it in perspective, traditional savings account frequently have interest rates of just 0.01 percent. By contrast, high-yield savings accounts will frequently have interest rates between 0.4 and 0.9 percent.
How to Choose a High-Yield Savings Account
Most of the factors you want to consider when looking for a high-yield savings account overlap with what you would want from any other type of savings account. They include:
- Whether there are maintenance, management, or other fees.
- Whether there is a minimum balance requirement (and what it is).
- The fees for other actions, such as overdrafts, wire transfers, and returned deposits.
- Whether it is FDIC-insured.
The last of these is crucial. You should only open a savings account that is FDIC-insured as this ensures your money is safe.
Pros of High-Yield Savings Accounts
The biggest advantage of this type of account is the high interest rate. You can also frequently connect the savings account to a debit card or a checking account for easy transfers.
Additionally, the internet makes it easy to compare accounts.
Cons of High-Yield Savings Accounts
Keep in mind that you typically cannot withdraw or complete certain transactions more than six times per monthly statement. This is a federal regulation.
When to Use a High-Yield Savings Account and Alternatives
If you want to increase your savings, then a high-yield savings account is a great alternative to a traditional savings account. They can help anyone grow your money more quickly.
You can also typically see similar or sometimes better results from money market accounts or CDs. CDs, however, lock up your money for a time.