Taking The High (Yield) Road: A savings account intro
Life is expensive. After paying for rent, food, bills and trying to maintain some kind of social life, scraping together enough cash to put into a savings account can seem impossible. With a high-yield savings account, you can earn serious interest on your spare change. Just transfer it in and forget about it!
What exactly is a high-yield savings account? Basically, it's a savings account with a higher earned rate of interest and a few restrictions. As of January 2009, the average rate of a regular savings account stood at just 0.48%. Compare that to the average 3.1% interest rate for a high-yield savings account. That's five times higher than a regular savings account.
Benefits
- Higher rates. Higher interest rates than traditional savings accounts mean you earn more money.
- Low opening and minimum balance requirements. Some institutions only require $1 to open, with no minimum balance requirement.
- Automatic savings plan. Many financial institutions allow you to set up recurring transfers from your other accounts, providing you with an automatic savings plan.
- Convenient account opening. Opening a high-yield account is as simple as any other savings account. Some financial institutions even allow you to open a high-yield account online.
Drawbacks
- Access to your money. Some high-yield accounts have no ATM, debit or check-writing options, which can make it difficult to get to your money in a hurry. Make sure to check for these options with your financial institution.
- High balances. Some institutions require you to maintain a minimum balance (sometimes $1,000 or more) in order to take advantage of the increased rates.
- Minimum to avoid a fee. Choose carefully, as some institutions charge a fee for not maintaining a minimum balance, or charge monthly or quarterly fees.
Besides the interest rate, you need to consider some other features when choosing an account.
- Insurance. Make sure any account is insured by the FDIC or NCUA. They currently insure accounts up to $250,000.
- Compounding method. Simple interest assesses interest on the principal only. Compound interest assesses interest on the principal and previously earned interest (a much sweeter deal).
With interest rates around 3%, high-yield accounts truly put your money to work. Plus, low minimum balance requirements make high-yield accounts accessible to nearly everyone, so start saving today.
Sources: datatrac.net; bankrate.com; fdic.gov; ncua.gov; fool.com; investopedia.com
High Yield Savings Accounts. If you going to write the article please provide some banks or venues that have these. The most I ave seen in recent months is only 1.2%
Hi there. Most financial institutions offer some kind of high-yield savings accounts. The interest rates for them have taken a hit in the last several months. However, check money market accounts and some high-yield checking accounts to see what those rates are before starting an account.
Post new comment