High yield savings accounts
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Whether you’re just starting out, or well on your way to growing your wealth, it’s never too late to save. Maintaining a savings account comes in handy for those larger, one-off purchases like a home or car, or even the unexpected like car trouble. As an alternative to traditional savings, consider using a high yield savings account instead.
When saving, most individuals deposit their money into a traditional savings account. However, these banks come with low interest rates averaging about 0.1%. For example, if you have a savings account with a $5,000 balance and 0.1% interest rate, you would return $5 at the end of the year.
Because these traditional savings accounts don’t offer much in terms of interest, the high-yield savings account can be a good alternative. High-yield savings accounts are savings account with interest rates typically 5x the national average. Therefore, if you hold that same balance of $5,000 in a high-yield account at 0.5%, your return at the end of the year is now $25.
CIT bank for example is offering up to 0.45%. Click here to start saving today! (Paid link)
Despite the higher interest rate, high-yield and traditional savings account operate similarly.
- Both are limited to 6 withdrawals per monthly cycle as per federal regulation.
- You are provided with federal insurance from bank failures through the Federal deposit Insurance Corp (FDIC) and credit union failures from the National Credit Union Association (NCUA).
There are some drawbacks...
- High-yield savings accounts are almost exclusively offered online. Therefore, if in-person customer service is important to you, the higher interest rate may not be worth the trade-off.
- You will likely end up with a savings and checking account at two different institutions (checking at a traditional bank and savings at an online bank).
- Features at these online banks are typically limited. Some won’t offer checking accounts or ATMs and any transfers or withdrawals have to be made electronically.
Questions to Ask Before Committing to a High-Yield Savings Account
What is the interest rate and for how long is it guaranteed? Sometimes online banks will offer promotional rates so be mindful if the rate you’re signing up for is temporary. Also check the compounding frequency (monthly, quarterly, etc.)
Is there a deposit minimum? In order to open an account some banks may require a minimum deposit upon opening.
Are there any maintenance fees? Sometimes banks will waive a maintenance fee is you maintain a specific minimum
Will the bank allow you to deposit or transfer funds to other banks and are there monthly limits?