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What are High Yield Savings Accounts?

Chris Gottschalk

Chris Gottschalk About The Author

Feb 18, 2020 5:39:00 AM

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

Piggy Bank with QuestionsHigh-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

People talking with coffee cupsIf 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.

We do our best to provide helpful information but we cannot guarantee the accuracy or completeness of the information presented in the article, under no circumstance does the information provided constitute legal advice. You are responsible for independently verifying the information if you intend to use it in any way. Additionally, the content is not intended to be reflective of First Alliance Credit Union’s products or services, for accurate and complete details about our product and service information you must speak to an advisor at First Alliance Credit Union.