High Yield Savings Accounts – What are They, and Which are the Best?
Savings accounts today offer nominal interest rates, making most people wonder if they should even bother. High yield savings accounts, on the other hand, help you earn more interest making it easier for you to reach your financial goals.
What is a High Yield Savings Account?
A high-yield savings account is just like the savings account you could get at your local bank, but it pays higher interest rates. Online high-yield savings accounts are with banks that primarily operate online, so they have lower overhead costs. Online banks pass their savings to their customers by paying higher interest rates.
The higher interest rates can make you want to improve your financial habits, making saving money a regular part of your budget.
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How do High Yield Savings Accounts Work?
Online high-yield savings accounts work just like the bank accounts you get at your local bank. However, instead of going to the bank to open an account in person, you open it online. It takes only a few minutes and a little bit of information to open an account.
Once you fund your account, which you do electronically, you have a new bank account. You’ll also make future deposits electronically, which can get tricky if you want to deposit cash.
You can make most deposits using the mobile deposit feature on your phone. You just need a picture of the check to deposit it into your account. You can also make electronic transfers from another bank account to your online high-yield savings account.
To deposit cash, you must first deposit it in another bank account at a local bank and then transfer it electronically to your savings account.
What are the Benefits of High Yield Savings Accounts?
The most significant benefit of a high-yield savings account is the higher interest rate. It’s not uncommon to find APYs at 1.0% or higher at online banks while local, brick-and-mortar banks, pay rates as low as 0.01%. The difference is big.
Another great benefit is the absence of fees. Most online banks don’t charge a monthly maintenance fee like you pay at your regular bank. You don’t even have to meet specific requirements to waive a fee. This is because online banks don’t have a lot of overhead and don’t offer as many services as local banks, so they don’t have to charge the monthly maintenance fee to stay in business.
Many banks work with local ATM networks too. So even though your account is online and there’s no physical bank to visit, you can access your cash at a local ATM without paying fees.
What are the Disadvantages of Online Savings Accounts?
As you can imagine, online savings accounts have a few downsides. First, if you aren’t comfortable banking online, it can be challenging to manage your money. It can be confusing for some if you make mobile deposits or electronic transfers.
Some online accounts also have stricter requirements than in-person banks, including higher minimum balance requirements. Always read the fine print to ensure you meet the minimum balance requirements to earn the higher APY the bank pays.
How High Yield Savings Accounts Help You Create a Solid Financial Future
A high-yield savings account is a great first step if you’re looking to secure your financial future. Because the accounts are FDIC insured, you don’t have to worry about losing money like you would if you invested it in the stock market or even some bonds.
If you compare the difference between the interest you’d earn on a regular savings account versus the interest you could make on a high-yield savings account, you’ll see why online accounts help you build a solid financial foundation.
For example, say you opened a savings account with $2,000 and contributed an additional $100 monthly for a year. At the end of the year, at a regular bank earning 0.01% APY, you’d earn $0.17 in interest.
If you deposited the funds in an online high-yield savings account at 1.2%, you’d earn $19.89 in interest. Over five years, you’d make $248 in interest just by letting the interest accrue over time.
The Top High Yield Savings Accounts to Consider
High yield savings accounts make your money work harder while keeping your funds safe from a total loss that most other investments risk.
Here are the top banks to consider opening an online savings account.
Discover Online Savings
Discover currently offers a high APY of 1.2% with no monthly maintenance fees or minimum deposit requirement. Interest is compounded daily and paid monthly. In addition, Discover offers 24/7 customer service and makes it easy to make deposits and access your cash.
Ally Bank
Ally Bank makes it easy to save for multiple financial goals. If you have a couple of reasons to save money, you can set up ‘buckets’ without having numerous bank accounts. It simplifies how you save money and will earn a higher APY of 1.25% (currently).
Ally Bank doesn’t charge maintenance fees or have minimum balance requirements, making it easy to set up your account and earn money.
Barclays Online Savings
Barclays online savings account pays 1.4% APY currently. Opening an account requires no fees, and no minimum balance is required. In addition, they provide 24/7 access to your funds and personal finance tools to help you save even more money. Simply set a savings goal, and they’ll motivate you to help you achieve it.
Final Thoughts
High yield savings accounts can help you save money fast. The accrued interest makes your money work for you, and the FDIC insurance protects your funds. They are a safe way to invest your money without putting it at risk of a loss.
Whether you’re saving for a short-term goal or want to put money aside for emergencies, opening an online savings account can help you make the most of your money and achieve your financial goals.
This information is provided for education and informational purposes only. All writers’ opinions are their own and do not constitute financial advice in any way whatsoever. Nothing published by Single Girl Club, LLC constitutes as financial advice and investment recommendation, nor should any data or content published by Single Girl Club, LLC be relied upon for any financial activities. Single Girl Club, LLC strongly recommends that you perform your own independent research and/or speak with a qualified banking professional before making any financial decisions.
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