With inflation high and the holidays right around the corner, you’re probably looking for ways to make the most of your money. Aside from budgeting and cutting back on spending, another option available is switching your savings account from your brick and mortar bank to an online high yield account to best save for the future. The rate of return from these accounts can help you boost your funds over time.
Here's everything you need to know about high-yield savings accounts.
What is a high-yield savings account?
High-yield savings accounts are similar to traditional savings accounts, except they pay a higher than average APY on deposits. An APY, or annual percentage yield, is the amount of interest earned on an account in one year. This means that when you save your money in a high yield savings account, this high rate of return will allow you to accrue more over time than many savings accounts offered by traditional banks.
Currently, the average APY on traditional savings accounts is 0.17%. High-yield savings accounts, on the other hand, have a much higher APY. For example, a high yield savings account through CIT Bank Savings Connect offers an APY of 2.7%.
Opening a high-yield savings account
Opening a high-yield savings account is a great idea for those looking to save for various reasons, such as saving for a car, starting an emergency fund, or just to keep up with rising inflation. This example from Forbes illustrates just how much of a difference a higher APY can make.
“Let’s say you want to open a savings account with $1,000 and save an additional $100 a month. Bank A offers a traditional savings account paying 0.07%, and Bank B offers a high-yield savings account paying 0.50%.
Over 12 months, Bank A would pay you a “whopping” $1.16 in interest on your initial deposit and monthly contributions. Bank B would pay you $8.27.”
Considering that many high-yield accounts have an APY over 0.50%, for example, accounts with Lending Club Bank have an APY of 2.65%, you can see just how much more cash you'll save over time than with a traditional savings account.
While most high-yield savings accounts are only offered by online banks or credit unions, opening one is similar to opening a traditional savings account. After choosing an account that’s right for you, taking into consideration fees, minimum deposit amounts, and minimum balance requirements, you’ll fill out an application that asks for standard information like your Social Security number, home address and driver's license number.
If approved, you’ll then be able to transfer your savings into your new account, which can be done by linking an existing checking account and making an ACH transfer. From there, as is the same with most traditional savings accounts, you’ll be able to withdraw funds and access your cash, all while earning interest. Just remember that the Federal Reserve’s Regulation D restricts withdrawals from a savings account to six transactions.
High-yield savings accounts: October 2022
The following are some high-yield savings accounts for October 2022. These are not recommendations but are merely examples of what is available. Before opening an account, remember to compare your options to find the best fit for your financial needs.
APY: 2.15%
Minimum opening deposit: $0
No monthly service fees
APY: 2%
Minimum opening deposit: $0
No monthly service fees
APY: 2.5%
Minimum opening deposit: $0
No monthly service fees
Can earn a $300 bonus for setting up direct deposit
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