High-Yield Savings Accounts
Updated on March 20, 2019
Interest rates on traditional savings accounts can be almost nonexistent. In fact, they’re often actually zero. As depressing as this is, it doesn’t mean you have to settle. If you’re looking to maximize your savings, a high-yield savings account is a great way to do so.
What Are High-Yield Savings Accounts?
Also known as high-interest savings accounts, high-yield savings accounts are just like traditional ones but with higher interest rates! Shockingly, the interest rates of high-yield savings accounts can be more than 20 times the interest rates of traditional ones. You’re probably thinking “well, what’s the catch?” Surprisingly, there really isn’t one. High-yield savings accounts have relatively high interest rates and they’re just as secure as traditional accounts. If you open your account through an FDIC-insured bank, which we recommend, your money is protected up to $250,000.
Things To Compare
All high-yield savings accounts are not made equal though. In order to grow your savings as much as you can, you’ll need to shop around. When deciding on which bank to open your account with, you’ll want to compare a few important details.
Annual Percentage Yield (APY)
The clear winner for most important detail is how much interest you’ll make. This will be shown as an Annual Percentage Yield, also known as an APY. APYs reveal exactly what percentage of your money you’ll get paid in interest over the timespan of a year. Typically, this yearly interest will be divided into twelve payments and added to your account monthly.
For instance, if you deposit $5,000 into a high-yield savings account offering 2% APY, you’ll earn $101 in interest if you leave your money untouched for a year. You’ll even earn a little more if you regularly add to your account. Although this amount isn’t huge, there’s no risk involved and it still beats the few dollars you would’ve made in a traditional checking or savings account.
Another detail you should compare is the minimum balance. Depending on the bank, minimum balances can range from $0 to over $1000. Banks with higher minimums tend to have higher APYs but usually not by much. Although, if you do have enough cash to reach these high minimums, you’ll be able to put a little more cash in your pockets.
ATMs & Checks
If having the ability to access your savings through ATMs or to send money by checks is important to you, you’ll also want to make sure your bank offers these services. While most high-yield savings accounts are designed to be online savings accounts with few transactions, some do offer an optional ATM card and check writing services.
Account fees should also be a major factor in choosing your high-yield savings account. Fees can easily wipe away your interest and should be avoided or minimized when possible. When comparing banks, you should focus on these common fees:
- Monthly Maintenance Fees. Some banks charge monthly maintenance fees just to maintain your account. Luckily, these fees can typically be avoided.
- Outgoing Wire Transfer Fees. Unfortunately, most banks will charge you a fee each time you wire funds from your high-yield savings account to another account. Although this fee is usually not avoidable, the amount varies between banks so you should still attempt to minimize it.
- Excessive Withdrawal/Transactions Fees. According to U.S. federal law, you are only allowed a total of 6 withdrawals or transfers from your savings account per month. ATM or in-person cash withdrawals from your savings account won’t be included towards this limit. If you still manage to exceed this limit, your bank will charge you. This fee varies depending on which bank you have so you’ll want to do some comparing.
- Overdraft Fees. As much as we try to avoid these, things happen. Make sure you know how much you’ll get charged for an account overdraft.
Technology & Customer Support
The last details to compare are the technology and customer support a bank offers to go along with your high-yield savings account. Although they might not affect how much money you earn from your savings, easy-to-use technology and top-notch customer support can save you headaches when managing your account. A select few banks offer easy-to-use mobile apps that allow you to simply manage your savings while others offer live help 24/7. There are even banks that offer both! If these things are important to you, take them into consideration when choosing which bank to open your account with.
Ultimately, a high-yield savings account can be a great way to maximize extra cash you’re not willing to risk losing. As you look to grow your savings, make sure you compare the key details and choose the high-yield savings account that fits your needs.