Finance Globe

U.S. financial and economic topics from several finance writers.
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Earn More With a High Yield Savings Account

If you have (or have thought about) a savings account at a traditional bank, odds are you aren’t getting a great rate. Savings accounts have one of the lowest rates of all types of investment and savings vehicles with rates as low as .10%. Put $1,000 in an account earning .10% annually and you’ll only earn $1 by the end of the year.

In the past several years, a better type of savings account has become popular – the high yield savings account. Online banks typically offer these accounts. They can pay rates above the national savings average because they don’t have the operating costs of traditional banks. High yield savings accounts yield even rival those of CDs and you don’t even face early withdrawal penalties for pulling your money out. The difference between a regular savings account and one with a high yield: a $1,000 deposit in a high-yield savings account with a .80% APY would earn $8 after a year. That’s 8 times more than the previous example.

Ally Bank and ING Direct are two popular online banks with high yield savings accounts. Traditional credit card issuers, like American Express and Discover, are now offering these accounts, too.

What You Have to Look For

Rates can change daily so make sure you check the current rates though a site like Bankrate or through the bank itself before opening. Shop around for rates and compare them to the national average. Rates may not be guaranteed, so if national interest rates drop, the rate on your high yield savings may also drop.

Make sure your account will have FDIC or NCUA insurance. This means your deposit is federally insured for up to $250,000 in case of a bank failure. Any deposit over that amount may not be covered. Banks will typically state whether the account is insured or not. To confirm, you can check FDIC.gov or NCUA.gov.

Check for account minimums. Many high yield savings accounts currently have a $0 minimum opening. Others may require an initial deposit of $500 or more. You might also have to keep a minimum balance to avoid paying fees. Or, you might have to keep a minimum balance to avoid forfeiting your interest earnings. Ideally, you’ll choose an account that doesn’t require a minimum balance.

You’re opening a savings account, you won’t have check writing privileges. (Consider a money market account through an online bank if you need to write checks.) You will, however, be able to link to a checking account, which makes it easier to transfer funds. And if you’re using an online-only bank, you won’t be able to make cash withdrawals, unless your account comes with an ATM card. In the absence of an ATM card, the only way to withdraw money from your online savings is to transfer to a checking account and then make the withdrawal. Keep in mind it may take a few days to get funds out of your online savings account.

While accounts may not have maintenance fees, there may be other fees. You might pay a fee for excessive withdrawals (e.g. more than six in a statement cycle), to receive an additional copy of a statement, for closing your account early, or for wiring money. Ideally, electronic transfers are free since this is the only way to move money into and out of your account.

The lack of bank branches is both an advantage and disadvantage. Because most high yield savings accounts are typically offered by online banks, they make it so you can easily do all your banking easily from your home. However, you won’t be able to make any over-the-counter transactions. If that’s a requirement you have of your bank, then an online account may not be the best option for you.

A high yield savings account is a good place to save up for a vacation, holiday shopping, or to put the down payment for your home. You’ll earn a much better rate than at your local bank and certainly more than if you kept the money in a shoebox in your closet.
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Monday, 14 October 2019

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