Why you should use high interest savings account
Saving money comes with several benefits. Besides ensuring that your money is safe, it is also a great opportunity to earn interest. But while you should expect more and more people to save a percentage of their monthly income, statistics paint a totally different figure. One survey conducted in 2007 indicated that only 30% of Americans have more than $1000 in their savings account. Another one conducted by the Government of the United States found that 30% of Americans who are older than 55 years do not have any retirement savings. The good news is that no matter your age or stage in life, you can still catch up. This can be achieve by finding the right high interest savings account to meet your needs and start saving whatever amount you can afford. Just don’t forget to be consistent in your savings. Most individuals make regular deposits in their savings account every month to avoid the urge of misusing money that could otherwise be saved.
‘Breaking down’ high interest savings account
High yield savings accounts are deposit accounts that pay more interest compared to traditional savings accounts. These accounts can be found online and in traditional institutions. High interest savings account is the best place for you to keep emergency money or other funds that will require ready access. With the account, your money will be safer compared to keeping your money at home. Besides, you will also earn interest from the funds.
When it comes to saving, you obviously would want to get the best interests rates from the money you store in banks. Banks normally pay interest rates when you keep your money with them. One advantage of high yield savings account is that they attract high interest rates. In traditional savings, you may only get a 0.01% on interest rates. But with high yield savings account, the interest rates can be up to 1.65% on the same amount of money. Golden Sachs savings account, for instance offers a 1.50% annual percentage yield with no minimum account balance or transaction fee required. On the other hand, Ally savings account attracts a 1.65% APY. But it is important to note that some high interest savings accounts require a monthly maintenance fee. There is also a minimum balance that you are required to keep in the account. In this case, you need to make sure that the fee is not higher or equal to the interest rates you expect to earn. After all, the main aim of opening the account is for your money to work for you.
Another thing that you may want to know before opening the account is if your money will be safe. Just like traditional savings account, money stored in high interest savings accounts are insured up to a certain amount depending on the bank you work with.
Choosing the right bank
Before making a decision, you first need to find the best bank for savings account. Depending on the account, there are some that will require a minimum monthly balance, monthly maintenance and other related fees. This is the reason why you first need to read the fine print. Other banks do not have a monthly maintenance fee as a requirement. But there may still be other associated fees for overdrafts, domestic wire transfers and returned deposit items.
How much should you be saving?
Financial situations may vary from one individual to another. But to be on the safe side, you need to have up to six months of your total monthly budget in the account. When you are faced with a crisis, which may be a job loss, emergencies or you need money for home renovations, then you will be having a substantial amount of money in the account to meet your needs. Otherwise, you may start looking for alternative funding like using a credit card to cater for your expenses which can be quite expensive if the money is not paid in full on your next payday. It may also have a negative impact on your credit score.
What are the benefits of high yield savings account?
Whether you are filthy rich or have a steady job with high salary every month, you will need to save money for emergencies. A high interest savings account can be a good starting point. The account attracts a high interest rate compared to traditional savings account. This means that you can earn more interest on the money you save to help meet your savings goals in a limited time period. Most online bank accounts do not attract a monthly fee and if there is, it is only incurred when there is insufficient amount in the account. Just like traditional savings account, money stored in high yield savings is also safe. In banks, the money is insured up to $250,000 by federal deposit insurance corp. This makes high yield savings account the best place to store cash while earning interest.
Things to consider when choosing high yield savings account
- Annual percentage yield
This is among the top considerations when choosing a high yield savings account. APY will tell you the amount of interest your money will incur over a year. The higher the APY the better.
- Minimum deposit requirements
It is also referred to as opening deposit. This is an important factor when choosing the best high yield savings account. The minimum deposit amount varies from one bank to another. Some banks will not require you to pay this amount but for others, you may be required to deposit up to $10000. It is important that your carefully consider your budget to determine how much you can comfortably invest in a money market account. If you want to reach a particular investment goal, you need to know how much you can comfortably save over a particular period of time for you to attain your investment goal. The more amount you save the higher your interest rate will be. If you are not willing to pay the minimum amount, you can look for an account that does not require any upfront financial commitment. In some cases, the accounts that require higher amount as initial deposits tend to offer a higher yield. Before opening a savings account, you first need to compare the minimum deposit requirements in different institutions.
- Minimum balance required
Most high interest rate savings account will also require you to maintain a minimum balance in the account failure to which a fee will be charged. This fee is usually referred to as the monthly maintenance fee. But as long as you maintain the balance, the fee will be waived.
Comparing the best high yield savings account
With some banks, you need to deposit a large amount of money for you to earn the highest yield. But there are also other savings accounts that do not require you to deposit large amounts for you to qualify for a higher yield. Such accounts can be the best option for emergency fund savers. Before choosing a bank, you need to consider several factors including digital capabilities, fees and ATM access.
Uses of high yield savings account
There is a wide range of uses that come with high interest savings account. The best one is to save for high valued items. This is because savings account with high-interest rates will increase the rate at which your money grows. Here are some of the main uses of high interest savings account:
- Saving for a home
Among the common reasons why people open a savings account is to buy a new home. It is actually not easy for you to save up to the required deposit amount. By opening a high yield savings account, your home ownership dream will be achieved sooner.
- Last minute college savings
When it comes to saving for college education, it is important that you start early and make frequent savings. 529 is a college saving plan that can be a great option since money in the plan is tax-free. You also will not be taxed when you withdraw the money to pay for college fees. To effectively use a high yield savings account to pay for tuition expenses, you need to come up with a savings goal and know the maximum amount you can invest in the account for you to hit the goal.
- Family vacation
Family vacations are exciting, but they also come with a budget. Luckily, you can have a perfect family vacation treat through a high yield savings account. For you to successfully use the account for this purpose, you should first decide the amount you want to spend and when you want to go for the vocation. You can then come up with a precise budget for travel, food, accommodation and other miscellaneous expenses.
Other uses of high yield savings account
With a high interest savings account, money is not restricted to only major expenses. The money can also be used as an emergency fund. Whether you lose a job or you want to maintain a failing HVAC system, a savings account can be the best solution. The funds can also be used for short-term expenses. You can also use high yield savings account for;
- Purchasing a vehicle
- Savings to buy furniture
- Annual expenses
- To save money for retirement
- Before picking a savings account
When comparing different types of savings accounts, you first need to pay attention to the interest rates. If you want an account that pays more amount on interest, you need to shop around for the best high yield savings accounts. High yield savings accounts have a guaranteed rate of return and are insured by the federal government. Online savings account are the best way to store your money and earn an interest rate out of the investment. The best online savings accounts give you a safe place to keep your money while earning top rates. Unlike financial institutions, online banks do not have maintenance expenses, which means that their annual percentage yield is relatively higher.
Why do some banks offer higher interest rates than others?
Most banks offer interest rates at almost the same level, but there may still be some differences. There are banks that pay a higher amount on the same product compared to others. You are likely to see a difference of about 1% APY in several institutions. In most cases, banks increase their rates when they want more money. If they want to attract more deposits, they will increase their interest in savings. But when they do not need cash, they maintain lower interest rates.
Why you should open a savings account
Opening a savings account is a wise decision considering that they are often free or cheap to open. Without the account, it can be challenging for you to save money for future needs. Holding cash is never safe, and you can also be tempted to spend the money you intend to save. With a savings account, you will be able to meet your financial goals. As much as you can still do without it, you will find yourself spending money on unnecessary stuff, and this can lead to a major financial throwback that can be avoided if you have a savings account. Money stored in a savings account is also safe. Instead of keeping your savings at home, you can store the funds in a high-interest savings account. With a savings account, you can easily access your funds. When you reach your savings goal, it is very easy to withdraw the funds unlike in traditional savings account where there are limitations on the number of transfers you can make every month.
How to Open a Savings Account
Opening a high-interest savings account takes less than an hour. You can also open an account online which is much easier and takes less time. Visit a bank branch if you want guidance on how to open the account.
- Compare different banks by taking into consideration their interest rates, minimum deposit and minimum balance requirements.
- If you consider opening the account with credit unions, be sure that you are eligible to join by checking their information online or giving them a call.
- Ensure that you choose an institution that meets your needs. If you have high financial goals, choose an account with high rates of return.
- Gather all the necessary information required to open the account. Among the documents required include a government issued ID, social security number and an email address.
- Open the account either in person or online by submitting an application form
- If required, you can deposit the initial amount to the account and add to it through regular deposits.
Adding funds to your account
There are several ways you can use to fund your account. These include:
- Deposit cash
This involves taking the money directly to the financial institution. Another alternative is to deposit the money at ATMs which can also allow you to make deposits after banking hours.
- Deposit checks
Here, you need to deposit a check to your high yield savings account. On the deposit slip, you need to indicate your deposit account number. You can also deposit the check by use of your mobile phone, which means that you don’t necessarily have to travel to a physical location to fund your account.
- Electronic transfer
You also have the option of making electronic deposits from another bank to your savings account.
- Direct deposit
If you receive your salary through direct deposit, you can ask your employer to split the payment for a certain percentage to go to your savings account.
Using your high yield saving accounts funds
For you to use your saved funds, you will first have to withdraw money from the savings account. After withdrawal, the money will go to your checking account. You can then write a check or use a debit card to use the money. You can withdraw the funds from an ATM if you need physical cash. By use of an ATM, you will be able to make unlimited withdrawals. Transferring money from your high yield savings account to your checking account with the same bank is much faster and easier. You can log in to the bank’s website or use the bank’s app to make the transfer. You also can transfer the funds from one bank to another. However, this option can take different business days, unless you transfer the funds for a fee.
If you want to easily access your money without having to open a long-term certificate of deposit account that will incur a penalty whenever you withdraw the funds, opening a high interest savings account can be the best solution. You don’t need to have thousands of dollars for you to start saving. Even depositing a small percentage of your monthly income will make a long difference in the long run. But before signing up, it is important that you first do background research on the account.
First, you need to find out the interest rates, minimum deposit required, the fees incurred and monthly balances. These are the main factors that determine the return you will get for your investment. You also have to make sure that that the bank is insured to ensure that your money is protected. The bank you decide to work with should also offer convenient services including mobile and online banking for you to easily transfer the funds.