Why You Should Have A High Yield Savings Account
If you read my recent post on Compound Interest and How It Can Help or Hurt You, then you won’t be surprised at why it’s important to have a High Yield Savings Account.
What is a High Yield Savings Account
A high yield savings account is simply a savings account with a higher interest rate than it’s traditional counterparts. They are offered through both online and brick and mortar banking institutions.
According to Bankrate, the average interest rate for savings accounts in the US is only 0.1% APY.
A high yield savings account can earn up to a 1.20% APY (some even offer higher!)
That is a huge increase from a typical savings account.
If you aren’t saving money in a high yield savings account, then you are cheating yourself in the long run.
With that in mind, you can see why opening a high yield savings account is beneficial for your personal finances.
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Why You Should Have A High Yield Savings Account
In short, you should open up a High Yield Savings Account so that your money works harder for you.
Let’s say that we put $5,000 into a high yield savings account that is compounded annually for 10 years with a 1.05% interest rate.
If we make absolutely no other contributions to the account, we will have $5550.51 after 10 years because of compounding interest.
If we had kept this money in a typical savings account with a 0.10% interest rate, we would only have $5,050.23 after 10 years.
That’s a difference of $500.28!
Questions to Ask When Opening A New Account
What is the annual interest rate?
The APY is going to play a big factor in how much interest you earn overall. Make sure to do your research and compare the APYs of different institutions.
Is there a minimum deposit requirement?
If you only have $2,000 and the institution requires a $5,000 minimum deposit, then that obviously isn’t the right account for you.
Make sure to determine any minimum deposit requirements before spending time on the application process.
Is a minimum balance required?
Do you need to maintain a minimum balance in the account? Depending on your overall goals for the account, this is an important consideration.
If you are saving for a trip and anticipate withdrawing the full balance in a few months, you want to make sure to pick an account with no minimum balance requirements.
Are there any associated fees?
Some banks require monthly fees for their high yield savings accounts, but many don’t.
A lot of banks that do require monthly fees typically have some kind of waiver. If you completely fall in love with an account that has a monthly fee, look into the waiver options and see if you are able to meet them.
How easy is it to access funds?
When picking a high yield savings account, you will have the option of selecting one through either online or brick and mortar institutions.
If you love being able to drive up to your bank and make a withdrawal in person, then a brick and mortar option is probably best.
If this doesn’t matter as much to you and you are okay with waiting a few business days to receive transferred funds, then an online institution might be for you!
Keep in mind that Regulation D will limit you from making more than 6 withdrawals a month from a savings account.
Does the institution have a mobile app?
If you like to do online banking from your phone, then make sure you pick a banking institution that has a quality mobile app.
I, personally, have closed an account with a bank because I hated their app so much.
Make sure you enjoy using the interface of their app before spending time on the application.
Picking A High Yield Savings Account
There are tons of resources available to help you sort through different high yield savings account options.
Here is a list of account comparisons from some of my favorite personal finance blogs:
Closing Thoughts
At first, it might seem like taking the time to open up a high yield savings account isn’t worth the effort--I was guilty of this too!
A high yield savings account will make your money work harder for you and help you make the most of your personal finances.
With that being said, make sure to do your research and thoroughly understand all of the terms, conditions, and requirements of any high yield savings account before applying.
You want to ensure that you select an institution that will help you achieve your financial goals and needs!
Happy saving!
<3 Charlotte