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What high-yield savings account is and how it can grow your money

What is High-yield Savings Account Is and How It Can Grow Your Money

High-yield savings accounts stand out from traditional savings accounts in that they reward you with a higher interest rate, allowing your money to grow even faster as it sits in your account.

The interest rate that these accounts offer is noted as APY, or annual percentage yield. The higher your APY on a particular savings account, the faster your money grows.

Though the current economic climate has caused savings rates to drop as of lately, the highest-yielding accounts can still earn you over 16X more money than regular savings accounts. With the national average APY on savings accounts at just 0.06%, it’s very likely that no matter what your high-yield account offers, it will still outlearn a normal savings account. And as the economy recovers and the Fed later raises interest rates back up, APYs on savings account will follow suit.

Not only does  money earn a better return in a high-yield savings account, but you still have access to your cash when you need it as you would in a normal savings account. Your money in a high-yield savings account should be federally insured by the Federal Deposit Insurance Corporation (FDIC), which means that deposits up to $250,000 are protected if the bank were to suddenly collapse.

Here are just a couple of the biggest financial benefits of high-yield savings accounts:

  • Higher APYs: High-yield savings accounts generally offer significantly higher interest rates than traditional savings products. That means you can earn more on your money and meet your savings goals faster.
  • No or low fees: High-yield savings accounts tend to come with no monthly fees and low fees for things like having non-sufficient funds. That’s especially so with high-yield savings accounts found at online banks.

 

How High-yield Savings Accounts Workhigh-yield savings account is and how it can grow your money

 

Compound interest allows your savings to grow quickly in a high-yield savings account.

Compared to simple interest, compound interest means you earn interest on both your principal balance and the interest it earns. With simple interest, it is just calculated based on your principal, or the balance you have in your savings minus interest.

How often your interest is compounded depends on the savings account. Some compound daily, while others compound monthly. The more your interest compounds, the greater your return.

With a high-yield savings account, you can withdraw or transfer money (including electronic transfers, checks and wire transfers) out of your account up to six times per month without having to pay a penalty fee or risk having their account closed. However, this federal law, known as Regulation D, has been temporarily lifted for all savings deposits during the coronavirus outbreak as people are requiring more urgent access to their money.

While a strong APY is a big factor in choosing a high-yield savings account, you will also want to look at the fine print. Because online banks don’t have the overhead costs that brick-and-mortar banks have to account for, they may offer a higher APY. But it could come with starting deposits, minimum balance requirements and monthly fees, so be sure to read closely.

CNBC Select rated our top five, contemplate the above qualifications, as well as accounts’ ease of use and accessibility.

 

Why You Can Trust Bankrate

Bankrate has more than four decades of experience in financial publishing, so you know you’re getting information you can trust. Bankrate was born in 1976 as “Bank Rate Monitor,” a print publisher for the banking industry and has been online since 1996. Hundreds of top publications rely on Bankrate. Outlets such as The Wall Street Journal, USA Today, The New York Times, CNBC and Bloomberg depend on Bankrate as the trusted source of financial rates and information.

Methodology For Bankrate’s Best High-yield Savings Accounts

Bankrate’s editorial team regularly surveys around 70 widely available financial institutions, made up of the biggest banks and credit unions, as well as a number of popular online banks. To find the best savings accounts, our editorial team analyzes various factors, such as: APY, minimum balance requirements and broad availability. All of the accounts below are insured by the FDIC at banks or by the National Credit Union Share Insurance Fund at NCUA credit unions.

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Why you can Trust Bankrate

Bankrate has more than four Horology of experience in financial Computing, so you know you’re getting information you can trust. Bankrate was born in 1976 as “Bank Rate Monitor,” a print publisher for the banking industry and has been online since 1996. Hundreds of top publishing rely on Bankrate. Outlets such as The Wall Street Journal, USA Today, The New York Times, CNBC and Bloomberg depend on Bankrate as the trusted source of financial rates and information.

Methodology For Bankrate’s Best High-yield Savings Accounts

Bankrate’s preparing team regularly observe around 70 widely available financial organization, made up of the biggest banks and credit unions, as well as a number of popular online banks. To find the best savings accounts, our editorial team analyzes various factors, such as: APY, minimum balance necessity and broad availability. All of the accounts below are indemnify by the FDIC at banks or by the National Credit Union Share Insurance Fund at NCUA credit unions.

 

What To Consider When Choosing a High-yield Savings Account

Here are a few important things to consider when searching for a high-yield savings account.

 

How To Open A High-yield Savings Account

Whether you want to build your emergency fund or save for a vacation or something else, a high-yield savings account can help you reach your goals. Opening a high-yield savings account is relatively simple, too. Here’s what you’ll need to do:

  • Shop around– High-yield savings accounts are offered by online banks, traditional banks with physical locations, and credit unions. The most important part of the process is to shop around to find the best high-yield savings account with the features you want (like a well-reviewed mobile app or no-fee account). You’ll likely find higher APY offerings at online institutions because they don’t have as much overhead to support and pass the savings along to savers. As you consider your options, think beyond APY, too. Compare the rates, fees and services offered to find the right fit for you.
  • Fill out an application– Once you’ve chosen a high-yield savings account, you’ll need to fill out an application. It might sound like an inconvenience. But it should only take a few minutes. The bank or credit union will likely ask for personal information, including your driver’s license number, Social Security number, mailing address, and date of birth. In many cases, you’ll be able to fill out the application online.
  • Fund your account– Once you’ve been approved, it’s time to fund your account. You have a few options. You can fund your account by linking a checking account to your new savings account and transfer money from checking to savings. Some banks will also allow you to snap a picture of a check and make a mobile deposit to your new account. Depending on the bank, you might also be able to fund your new savings account with cash, through a wire transfer or by mailing in a check.

You’ll want to make sure you deposit enough money into the account to meet the minimum deposit requirement. The bank could charge you a maintenance fee or slap you with a lower than expected interest rate until you meet the minimum balance required.

 

What To Do If  You Are Unable To Get Approved For a High-yield Savings Account?

First, ask your bank why you weren’t able to open a high-yield savings account. Depending on the answer, you might want to go to ChexSystems’ website and request a report to see whether your banking history is the reason why.

ChexSystems is a national specialty consumer reporting agency that keeps track of some of your banking history. Your check cashing history, any suspected fraud activity and closed accounts are some of the things that may appear on a ChexSystems report.

 

How To Build Your Emergency Savings During A Pandemic

Having an emergency fund, with three to six months of living expenses in it, can help you survive an unexpected event, like an air conditioning system or a dishwasher breaking. Without an emergency fund, you might incur debt or spend money that isn’t earmarked for an emergency. An example is depleting your retirement savings to fund an emergency.

To build an emergency fund, budgeting is the key. Your budget will show you where your money is going. If you’re spending more than what you’re making, you need to adjust your budget or increase your income.

One of the best ways to set up an emergency fund is to automate the process to prevent you from forgetting to save. You can do this by automatically having part of your paycheck go into a high-yield savings account. It’s harder to spend money that’s never in your checking account. You could also set up a recurring transfer from your checking into your savings.

Any extra income is a great saving opportunity. Before spending a gift, stimulus money or any unexpected cash, try to save at least a portion of it. You’ll be glad you did when an inevitable emergency occurs.

You’ll want to put this emergency fund in a high-yield savings account so that it’s earning a competitive yield. After establishing an emergency fund with three to six months of expenses in it, you might want to consider putting longer-term money in a CD.

Just be aware that CDs usually have early withdrawal penalties. But a no-penalty CD could be the best of both worlds — a fixed APY and the ability to withdraw your money pretty much whenever you need it.

 

Do the math Before Picking A Savings Account

Paying attention to interest rates is key when you’re comparing savings accounts. But you should also use a calculator to crunch some numbers.

Let’s say you’re deciding between a savings account that pays the national average of 0.07 percent APY and one that pays 0.6 percent APY. If you’re depositing $2,000, the difference between the amount of interest you’d earn through either account in a year is about $10.40. But if you’re depositing $50,000, you’d earn around an extra $260 by picking the account with the higher yield. This assumes that the savings APY would stay the same for a year. Since savings APYs are usually variable, that’s unlikely to happen in this current rate environment.

If you’re looking for a secure account that pays more interest, take a look at the best high-yield CDs. Like savings accounts, they’re insured by the federal government and offer a guaranteed rate of return.

 

Why did high-yield savings rates go down

The Federal Reserve began lowering rates in July 2019. Three rate cuts in 2019 (July, September and October) unwound a third of the rate increases from December 2015 to December 2018.

In March, two unscheduled emergency rate cuts by the Fed brought the federal funds rate down to zero — the same level it was at from December 2008 until December 2015. The Fed acted quickly in March, cutting rates due to the risks coronavirus posed to the economic outlook in 2020 and beyond. The top high-yield savings accounts have been decreasing, a few basis points every so often, ever since.

High-yield savings account APYs tend to move before or after the Fed lowers the federal funds rate. That’s why almost all high-yield savings accounts have decreased since around June 2019.

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