What Is a High-Yield Savings Account?

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How To Open A Savings Account

A method of making your money work for you that is both simple and safe is by opening a high-yield savings account, which is a savings account that has higher-than-average interest rates compared to traditional savings accounts.

Continue reading to learn more about high-yield savings accounts, and see if this type of banking product is a good choice for you!

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What Is a High-Yield Savings Account?

A high-yield savings account is a savings account that offers high interest rates, much higher than your typical savings account, which allows you to make the most of the money you have in the account. Financial institutions and banks probably won’t advertise their accounts as “high-yield”, but if you find an account that has an annual percentage yield more than 1.00%, then it is a high-yield rate.

However, keep in mind that banks will adjust their savings account rates depending on the Federal Reserve rate adjustments. These adjustments tend to occur around every six months.


Is Your Money Safe in a High-Yield Savings Account?

A high-yield savings account will have the same type of guarantees and protections as a traditional savings account will have. This includes protection with the Federal Deposit Insurance Corp. up to $250,000. For credit unions, your savings account will be baked by the National Credit Union Administration.

How Much Should I Put in My High-Yield Savings Account?

High-yield savings accounts often have penalties if you go over a certain number of transactions. You should put as much in your high-yield savings account as you can without having to frequently access it.

If you are trying to put more money in the account that exceeds your potential emergency fund (three to six months of living expenses), then you might want to consider a CD, bonds, stocks, retirement accounts and other long term investments.


What To Consider Before Opening a High-Yield Savings Account

Before you open a high-yield savings account, make sure it meets some qualifications so you don’t risk losing money in other ways. Here are some factors to consider when choosing the best account for your money.

Look For an Account Insured by the FDIC

As mentioned above, an account that is insured by the FDIC, or NCUA for credit unions, means your money will be covered up to $250,000, so if the bank fails, your money isn’t lost.

Choose an Account With No Fees

A great interest isn’t so great if you’re just losing it to account fees, so choosing an account with no fees will get you the most out of your money.

Find Out About the Minimum Balance Required

A minimum balance is the lowest amount of money needed in your account for you not to be charged a fee. You can avoid this altogether if you open an account with an online bank; typically, online banks offer great rates and other perks like no minimum balance due to a lack of overhead.


What Do You Need To Open a High-Yield Savings Account?

Similar to opening any other type of bank account you will need some form of identification as well as an initial deposit. Some banks have initial deposits that are quite high while others have none; call in advance to find out. Berkshire Bank stated that proof of identification can usually com in these forms:

  • Driver’s license or state photo ID
  • U.S. passport
  • Firearms identification card
  • U.S. armed forces identification card
  • Other state identification

Alternatives to a High-Yield Savings Account

If you’re not sure that high-yield savings accounts are the best place to invest your money, consider these alternatives to earn interest:

  • CDs: A certificate of deposit is a low-risk and low involvement banking product that allows you to put away a sum of money for a specified period of time. You will get a higher interest rate as long as your money is in the CD. However, if you need to access your money, you will be charged a penalty.
  • Money market accounts: A money market account is like a checking and savings account hybrid. MMAs are better if you need more liquidity because they often come with checkbooks and debit cards, just like checking accounts. But they come with lower interest rates in exchange.
  • Traditional savings: These accounts are the same as a high-yield savings account, but with lower rates — and potentially lower fees.

Bottom Line

A high-yield savings account is a great tool to use if you want to get the most out of your money! If you’re looking for an account to store your emergency fund, a fund that contains around 3 to 6 months of living expenses, then this is a great account for that. For longer term saving, consider a CD, money market account, stocks, bonds and other investment products. For more posts like this, check out our list of bank guides!

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