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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.
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Despite the higher interest rate, high-yield and traditional savings account operate similarly.
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?