So, you are ready to save up some money. Can’t decide where to deposit that money? Make sure you open up a High-Yield Savings Account. A high-yield savings account provides some of the highest interest rates on your money compared to other standard types of banking accounts. They are perfect for people who want to make their money work for them and help it grow.
How High-Yield Savings Accounts Work
High-yield savings accounts use a percentage of your total deposits to generate the interest paid out on that account. The amount of interest paid out is usually based on the account balance and the period of time that the account has been open.
To be qualified for the highest possible interest rates, you must meet certain criteria that your financial institution might require. For example, to receive the best interest rates, you might need to make a minimum deposit of around $100 and maintain a balance of at least $500. If you only have a small amount to deposit each month, there may be options to start with a lower amount.
The criteria vary and can be different if you have multiple accounts within the same financial institution. Some banks require an average daily balance of $5,000 or more in order for you to earn the maximum interest rate paid out on your account.
When Is a High-Yield Savings Account Better Than a Checking Account?
Checking Accounts are simple to maintain and use, but they typically have low rates of return on these accounts. You can deposit funds in a checking account by using a check or with cash.
A savings account is set up to hold money for you. Savings accounts usually have higher interest rates than checking accounts, but there is typically a requirement that you must maintain a balance of $500 in order for your savings account to earn any interest.
A high-yield savings account is a type of savings account that typically has a relatively high interest rate on the funds deposited, but with the tradeoff of having stricter requirements for how much money you must deposit — typically upwards of $1,000. For example, some high-yield savings accounts will require that you direct some or all of your paychecks to be automatically deposited into the account, or require that you have an automatic transfer of funds from checking to savings each month.
High-yield savings accounts are often the best option for people who are looking to earn more interest on their money without having to tie it up in investments like mutual funds, which can earn higher returns but lack liquidity. Because high-yield savings accounts typically require higher minimum balance requirements, they rarely make sense for people looking to save just a few hundred dollars; however, they might be more rewarding than checking accounts with high fees and low interest rates.
Interest Rates
If you are looking for a new savings account, be sure to compare interest rates. The higher the interest rate, the more your money will grow over time. Be sure to check if there are any minimum balance requirements or monthly fees with your preferred high-yield savings accounts before opening an account — you may find that checking accounts are a better fit for your savings goals.
Interest rates on high-yield savings accounts are typically higher than regular checking accounts. Look for an interest rate of above 1.5% to make the most of your money in a savings account.
Personal Savings Accounts
Personal Savings accounts can be great for emergency funds. If you do not like the thought of putting your savings in a checking account, where it could easily get spent, high-yield savings accounts are excellent choices to grow your money securely. Personal Savings accounts often have monthly fees, so you will want to make sure you receive a high enough interest rate to offset the fees.
CDs
CDs (Certificates of Deposit) are similar to savings accounts in that they are very low risk. However, because you cannot withdraw your money without penalty until the term is over, CDs are not ideal for emergency funds. CDs are ideal for long-term investments, or emergency funds that you do not need immediate access to. You can even take advantage of jumbo certificate of deposit accounts which are specifically tailored to accommodating large sums, complete with comprehensive insurance for amounts of up to $250,000. As such there really is a CD savings product for all sorts of customers, regardless of how much you want to set aside.
Conclusion
A savings account is a great first step for a person looking to start investing, or for those with little financial knowledge. However, if you are looking to maximize your return on investment, you will want to make sure you receive a high enough interest rate to offset the fees. For emergency funds that you do not have immediate access to, CDs are a great choice, but for longer-term goals or more liquid funds, a high-yield savings account is the way to go.
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