Savings: High-Yield Savings Account
- The COVID-19 pandemic shed light on the financial state of many Americans financial state, and how having money in your savings account can help you to feel financially stable.
- A high-yield savings account has many benefits, such as securing and storing your money in an FDIC-insured bank account.
- Due to the interest rate, your money grows at a faster rate in a high-yield savings account versus a traditional savings account.
The COVID-19 pandemic shed light on the financial state of many Americans financial state, and how having money in your savings account can help you to feel financially stable. A high-yield savings account could be a great way to store your money, depending on your money goals.
Since a high-yield savings account has a limit to how many times you can withdraw or transfer funds from your account, you must be a disciplined saver. If you have a habit of frequently withdrawing or transferring money from your savings account, then a high-yield savings account may not be for you.
Below are a few reasons you can utilize your high-yield savings account and standard terms to help you to understand what the account entails.
How Can I Use a High-Yield Savings Account?
A high-yield savings account is for large amounts of money, typically over $1,000 or more. A high-yield savings account can grow your money faster due to the high-interest rate, which offers a higher annual percentage yield than a traditional bank account. There are several ways to use your high-yield savings account, such as:
Store your emergency fund. Your emergency fund should be at least three to six months' worth of expenses. Monthly expenses can add up to a large amount, and a high-yield savings account will help to give you the best rate of return on your money.
Store a large purchase. A high-yield savings account is a great way to safely save your money and watch it grow if you are planning to buy a house or pay for your college tuition.
Standard Terms for High-Yield Savings Accounts
Before you open a high-yield savings account, it's essential to research (or call their customer service department and ask any lingering questions) to ensure you understand the rules of the specific savings account. Here are a few standard terms that you should know about:
- The Federal Deposit Insurance Corporation (FDIC) protects consumers' money in their bank accounts. FDIC-insured banks usually safeguard consumers' money up to $250,000.
- The annual percentage yield (APY) lets a consumer know the amount of interest they can receive based on how much the consumer stores in their account. The APY is critical to understand because it lets a consumer know the rate of return, which is the profit of you investing your money in a bank account.
Example
- A bank offers a 1% APY on its high-yield savings account.
- A consumer holds their emergency fund of $5,000 in a high-yield savings account.
- At the end of the year, the consumer will receive a rate of return of $4.17.
- Online banks typically offer higher yields on your savings accounts because they don't have the same overhead fees as brick-and-mortar banks.
- High-yield savings accounts are for long-term savings because there is a restriction of only six withdrawal and transfer limits per the statement cycle.
The Money Wrap-Up
A high-yield savings account has many benefits, such as securing and storing your money in an FDIC-insured bank account. Due to the interest rate, your money grows at a faster rate in a high-yield savings account versus a traditional savings account.