If you’re comparing investment and savings vehicles, you might have run across enticing high yield savings accounts. Many people ask “What is a high yield savings account?” because, regardless of the interest rate environment, earning more on your savings is usually a positive choice.
The main benefit of high yield savings account is simple. Higher yield maximizes your capital’s earning potential. A high yield savings account is relative. If the average savings rate is one percent and a high yield savings account earns three percent, your money will grow faster at a higher rate. If you’re looking for a safe place to invest your money, determine if the high yield savings account is FDIC-insured. Without FDIC insurance, a high yield savings account may add risk to your safe money portfolio.
What is a High Yield Savings Account? Risks
Comparing high yield savings account rates can cause you to ask what’s behind them. High yield savings rates can vary dramatically, so it’s important to ask lots of questions before you invest. An online search can help you identify comparative high yield savings account rates. Read the prospectus before making an investment in a high yield savings account to determine asset and credit quality.
Many international banks advertise high yield savings accounts to U.S. investors. Even if the high yield savings rate looks like a good deal, ask questions about account guarantees and the potential impact of currency fluctuations on your potential return. An international high yield savings account can add risk to your portfolio.
What is a High Yield Savings Account? Marketing Strategy
High yield savings accounts may require you to make a larger initial investment. If you’re saving a large amount of money for a car or house, putting the money into a secure high yield savings account can help you reach financial goals faster.
Some financial institutions and credit unions advertise high yield savings accounts as part of their marketing strategy. If you’re a long-term customer of a bank and you’re comfortable there, a higher yield on your savings may entice you to move part or all of your money there.
What is a High Yield Savings Account? Features and Restrictions
If a bank or credit union is in search of new deposits, offering a high yield savings account can help increase deposits. A small to medium-sized institution that makes loans in a rising economy needs more capital to capture loan demand.
High yield savings accounts aren’t the best choice for every investor. You may want to keep your money at a single bank or credit union and enjoy visiting your bank on occasion. You might not want to transfer funds from one bank to another to get a better rate.
Many high yield savings accounts have some restrictive features. For instance, you may be required to maintain a high minimum balance. The amount of monthly withdrawals from the account may be limited. Others offer an introductory or promotional rate for a certain period of time or reduce the rate of return if your account balance falls below a certain cutoff. Read the account documents before deciding to apply for a high yield savings account.
What is a High Yield Savings Account? Online Savings Accounts
Online banks have lower operating expenses, so it’s not surprising that some of the most competitive high yield savings accounts are offered from online financial institutions. Opening a high yield savings account online is relatively simple. After submitting an application form and receiving approval to deposit funds, you’re a customer of the bank. No meeting with the bank’s vice president or new accounts specialist is required.
An online high yield savings account is ideal for people who already transact business online. According to Forrester Research, most financial consumers already pay bills and check account balances online. If you’re interested in securing a competitive high yield savings account rate, you’re likely to respond to an online bank. Ally Bank, Capital One, American Express Personal Savings, GE Capital, and Barclays Bank are some of the online banks offering high yield savings accounts.
What is a High Yield Savings Account? Online Banking
Financial consumers and bankers sometimes use online savings accounts and high yield savings accounts in a synonymous way. An online bank has the ability to offer customers throughout the nation with higher than local rates. Unlike credit unions, the online bank doesn’t have membership or location requirements. Overhead and operating expenses are frequently lower, so the bank can pass along higher rates to customers.
The answer to “What is a high yield savings account?” is simple. To identify the best high yield savings accounts, compare rates and fees. Then, consider the pros and cons of opening a high yield savings account according to your preferences:
- The pros of a high yield savings account might include easy access and positive user experience. For instance, the high yield savings account institution doesn’t restrict the number of times you can withdraw money or transfer funds in and out of the account. Many high yield savings accounts don’t require a minimum balance or initial deposit amount.
- The cons of a high yield savings account might include delays between accomplishing transfers between your current checking and savings account and the high yield savings account. If you don’t consider the delay and need fast access to your money, you might be out of luck. Ask the prospective online bank about transfers, ATM access and other issues that may affect your decision.
To identify the right high yield savings account provider, ask questions and compare your findings. The best high yield savings account can simplify your life.