Definition of High Yield Savings Account
A High Yield Savings Account is the same as a standard savings account, but earns a much higher return on your money. The national average return on savings accounts is 0.06%. However, you can find high-yield savings accounts that pay up to 0.60%.
Why You Should Consider a High Yield Savings Account
A savings account is an important part of any financial portfolio. When you build your savings, you want that money to earn a competitive return. Putting your savings in a high yield savings account will keep your money safe and allow you to earn interest.
Benefits of a High Yield Savings Account
- Emergency fund: One of the best ways to use a high yield savings account is to use it for your emergency fund. If you make regular deposits into a high-yield savings account instead of investing all your money, you don’t have to worry about a market drop wiping out your savings and pushing back your goal, for example.
- Short-term savings goals: High-yield savings accounts are also a good way to save for short-term goals, like saving for a vacation or a car. If you want to pay something in the next few months, you don’t want to invest your money in risky investments like stocks. If the market falls, you will lose your vacation fund.
- To park your bargain: High-yield savings accounts are also a good place to store windfall gains, such as stimulus checks or other payments. You can save the windfall in your High Yield Savings Account until you decide what to do with the money.
Disadvantages of High Yield Savings Accounts
- Bad options for long-term goals: Although high-yield savings accounts have high returns compared to standard savings accounts, they don’t pay enough interest to meet long-term savings goals or even keep up with inflation. If you have a long-term goal like retirement and can handle some volatility, investments like stocks or mutual funds are likely to be a better bet.
- May have stricter requirements: High Yield Savings Accounts may have stricter requirements than a typical savings account. For example, you may need to have a larger deposit to be able to open the account in some banks.
- Maybe a little more difficult to access your money: High-yield savings accounts held at different institutions from your checking account provider can also make it harder to access your money. For example, transferring funds to your checking account may take a few days. Additionally, you are limited to six withdrawals per month from your savings account due to Regulation D.
Can you lose money on a high yield savings account?
Like other savings accounts, High Yield Savings Accounts are protected by the Federal Deposit Insurance Corp. (FDIC), which means you will receive up to $250,000 protection per account holder at the bank in the event of failure. If your bank, for some reason, cannot return the money you deposited in the High Yield Savings Account, the FDIC will reimburse you for the loss.
However, your savings may lose purchasing power over time due to inflation. For example, if your high yield savings account is earning 0.5% and the annual inflation rate is 2%, your money has lost 1.5% of its purchasing power.
What to Look for in a High Yield Savings Account
When comparing high-yield savings accounts, there are two things you need to consider: the annual percentage return and the fees.
- Annual percentage return: APYs are the main reason to open a high yield savings account, so you want to find the account that pays a high interest rate. These days, a competitive high-yield savings account earns at least 0.5%.
- Costs: Some banks charge monthly fees on their savings accounts. Usually, you can avoid these fees if you meet certain conditions, such as maintaining a minimum balance or making a minimum deposit each month. If possible, look for a high-yield savings account that doesn’t charge monthly fees. If you must opt for an account that charges fees, make sure you can easily meet the fee waiver requirements each month.
The best savings accounts
If you’re considering opening a high-yield savings account, here are some of the best options.
Ally is an established online bank that offers a full set of financial services, including banking, loans, and investments.
His savings account pays a competitive interest rate, with no monthly fees and no minimum balance. If you’re considering switching to online banking entirely, Ally is a great option to consider. Bankrate has named Ally Bank the Best Bank of 2022.
Living Oak Bank
Live Oak Bank is an online bank that consistently offers some of the best interest rates around. There’s no minimum balance and no monthly fees for its savings accounts, so anyone can take advantage of its great rates.
Chime is a newer digital brand that offers a checking account and a savings account.
Its savings account pays a competitive rate and doesn’t charge monthly fees or require a minimum balance, making it a good choice for people who want an easy-to-open bank account.
Comenity Direct is an online bank that offers a high yield savings account and CDs. The savings account pays a competitive APY and there is no minimum balance required to earn the APY or avoid fees.
Marcus of Goldman Sachs
Marcus is an online bank that offers a savings account and CDs, as well as investment and loan products. The bank savings account offers competitive APY and no minimum balance is required to earn APY or avoid fees.