Whether your next big financial goal is to build emergency funds, come up with a down payment, or save up for a big purchase, odds are you have a savings account.
With a traditional savings account, you may be leaving money on the table. If you’re looking to hit your savings goals and eventually be less reliant on your credit card, then a high-yield savings account (HYSA) may be right for you.
As you consider opening up a high-yield savings account, you’ll need to know the pros and cons. Keep reading so you can determine if high yield savings is right for you.
How do high yield savings accounts work?
For the most part, a high-yield savings account should work very similarly to a traditional savings account: You store money in the account in order to let it earn interest over time.
The big difference with high-yield savings accounts: These accounts give you access to much higher interest rates, which can help you earn more and reach your goal sooner.
The interest rates on high-yield savings accounts are often noted as “APY” or annual percentage yield. As a rule of thumb, the higher the APY on an account, the faster your money grows. If you’re looking to make more interest on your hard-earned cash, then you can start maximizing your earnings today with these high-yield savings options.
However, it’s important to note these interest rates are variable and can change at any time. In particular, they are tied to the Federal Reserve and fluctuate whenever the benchmark interest rate goes up or down.
How much interest will I get on $1,000 a year in a savings account?
Despite the fact the savings rate on a high-yield savings account is variable, you’re still likely to earn more by keeping your money in one of these accounts over a traditional savings account.
Traditional savings accounts are earning interest at a rate of 0.06%. Here’s a look at how much more you stand to earn with $1,000 a year in a high-yield savings account vs. a traditional one:
- Traditional savings account: Earning interest at that rate, if you were to make a $1,000 deposit, you would earn a total of $0.60 in a year’s time.
- High-yield savings account: If you put that same $1,000 deposit in a high-yield savings account that had a 1% APY, in a year’s time, you would stand to earn $10 by keeping your money in that account. Though, you would stand to earn even more if your APY was greater than 1% or your balance was larger.
Credible can show you options from multiple banks that offer high-yield savings accounts have — from the minimum balance requirement required and APY to whether an account is available in-person, online-only, or both.
What are the drawbacks of high-yield savings accounts?
Keep in mind that high-yield savings accounts aren’t without their drawbacks. For instance, some have minimum balance requirements while others come with a monthly service fee. In addition, while you can deposit into a high-yield savings account as many times as you’d like per month, these financial products are subject to the Federal Reserve’s Regulation D, which limits the number of times that you can make a withdrawal from savings account to just six times per month.
No matter how much money you have to deposit into a high-yield savings account, you can save extra cash by investigating your HYSA options with Credible. By researching your options before you open the account, you can find the one that is the best fit for you.
How do I open up a high-yield savings account?
Fortunately, opening up a high-yield savings account is fairly easy. Here’s what you need to do:
- Decide what banking institution is right for you
- Fill out a short application
Here are some questions you may be asked on your application:
- Your full name
- Address
- Contact information
- Social security number
- Your financial history
After your application has been approved, it’s simply a matter of funding your account. In most cases, you can do this via an electronic transfer. However, if you’ve chosen to open an account at a brick-and-mortar bank or credit union, you may also have the option of visiting in-person to deposit the funds.
Should I open a high-yield savings account?
Typically, the answer to whether an HSYA is the right choice for you is a matter of budgeting your excess funds.
For instance, if you have credit card debt, it makes sense to put any excess money into paying that down before you worried about building savings. After all, paying down your debts will lower your credit utilization ratio, which will raise your credit score. That said, if your debts are paid, adding money to your savings it’s a great idea. In particular, choosing an HYSA can help you to get the most value out of the money you put away.
If you’re ready to take the next step, exploring your high-yield savings account options with Credible can help you get started on putting your money to work for you.