Everyone knows that savings accounts pay interest on the money you keep in them. However, that amount of interest you learn is pretty low. Usually, it’s a fraction of a percent. This can lead to a lot of people wishing there was somewhere they could store their money where it could earn more interest.
Enter the high-yield savings account.
High-Yield Savings Account Benefits
High-yield savings accounts are exactly what they say they are—savings accounts that offer a higher interest rate than a traditional savings account. What the exact number is, though, varies greatly.
While a traditional savings account will have interest rates of about 0.01%, a high-yield savings account will have interest rates of at least 1%. In other words, if you were to put $100 in a traditional savings account, you’d have $100.01 after a year. If you were to put the same $100 in a high-yield savings account, you’d have $101 after a year.
Granted, one dollar per year doesn’t seem like a lot. However, when you factor in monthly deposits and compound interest, you can stand to make significantly more money than you could if you only put your money in a traditional savings account.
Drawbacks of a High-Yield Savings Account
Even though high-yield savings accounts can seem like a great deal, they also have their drawbacks. The biggest drawback is that a lot of high-yield savings accounts require you to keep a minimum amount of money in them in order to keep the high interest rate. If you don’t, you don’t get the higher interest rate.
High-yield savings accounts may also come with monthly maintenance fees. When looking at high-yield savings accounts, you need to make sure that the fees don’t wipe out any of the money you might get from the higher interest rate.
Currently, though, some online-only banks offer high-yield savings accounts. These banks can afford to offer a higher interest rate since they don’t have the overhead brick-and-mortar financial institutions need to worry about.
While keeping your money in these online-only banks may be tempting, online-only banks have limited means to accept deposits, and generally have little to no in-person assistance. If you want to keep your money in a high-yield savings account run by an online-only bank, be sure to take a look at how the bank accepts deposits, how you can withdraw money from your account and whether or not you can talk to an actual person if you need assistance.
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High-Yield Savings Account Alternatives
If you’re looking for other ways to get a high interest rate for your money, you do have other options than a high-yield savings account. A Certificate of Deposit (CD) will give you an interest rate that is comparable to a high-yield savings account, and it only gets better the longer you leave your money in a CD. If you want a good interest rate for a retirement fund, take a look at an IRA. Both traditional and Roth IRAs have comparable savings rates to a high-yield savings account, and they can have significant tax benefits as well.
Get a Savings Account That Fits Your Needs at First Alliance Credit Union
High-yield savings accounts do offer a higher than average interest rate. However, they’re not the only account that does so. You can find several different types of accounts that offer a comparable interest rate and provide other useful benefits.
