An account that pays a notably greater interest rate than a regular savings account is called a high-yield savings account, or HYSA. If you want to maximize the growth of your assets and make your money work harder, a high-yield savings account can be a useful tool. However, how do they function? Now let's get started.
A High-Yield Savings Account: What Is It?
With high-yield savings accounts, you can earn more interest on your money than you can with ordinary savings accounts, which often offer moderate interest rates.
Standard savings account interest rates currently average 0.42% nationally1. However, high-yield savings accounts offer rates as high as 2-5%, which is significantly higher than the average. Your savings will increase faster as a result of the increased interest your money will accrue over time.
Online banks and other financial organizations that have fewer administrative expenses often offer these accounts, enabling them to pass the savings on to their clients in the form of higher interest rates.
Although opening a high-yield savings account at a different bank than your checking account can be necessary, current technology like Electronic Funds Transfer (EFT) makes transferring money across accounts easy.
Why Create a Savings Account With a High Yield?
Building an emergency fund or saving for a trip are two examples of short-term savings goals that can be quickly attained with the aid of a high-yield savings account.
This is why it makes sense to open a high-yield savings account:
- Growth in savings that is accelerated: High-yield savings accounts enable you to meet your savings objectives more quickly than you might with a traditional savings account because of compound interest.
- Secure and safe: The Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) cover high-yield savings accounts. This insurance makes sure your money is secure even in unpredictable economic times by safeguarding your deposits up to the maximum permitted amount.
- Low-risk investment opportunity: Unlike stocks or other higher-risk assets, high-yield savings accounts are regarded as low-risk investments. A great choice for investors who are risk averse, this one earns interest on top of your principal.
High-yield savings accounts are a great way to get the most out of your investments, especially when it comes to short-term savings objectives.
APY
As a proportion of your beginning balance, annual percentage yield, or APY, is the total interest earned over a year. For example, an annual percentage yield (APY) of 2.5% on your high-yield savings account indicates that, with compound interest, your funds would increase by about 2.5% over a year (assuming no further contributions were made during that year). The rate at which your savings grow will increase with a higher APY.
Transfers and Withdrawals
Six withdrawals or transfers are occasionally the monthly cap for high-yield savings accounts, and some institutions may levy fees for making more withdrawals than that. You can link your current accounts and make online transfers or withdrawals just like you would with any other account if you open a high-yield savings account and a checking account at the same institution.
The time it takes to move money between your checking account and high-yield savings account may increase if they are held by separate banks (usually 1-3 business days). You will have to start the transfer by entering your checking account information on the web portal for your savings account.
How to Fund a Savings Account With a High-Yield
The majority of high-yield savings accounts are offered by Internet lenders, while some traditional banks also carry them. You can reduce your alternatives by deciding whether or not in-person assistance is important to you based on your preferences. The process of opening the account is then very simple. Most likely, you'll require the following paperwork:
- The number on your Social Security card.
- A valid form of identification (like your driver’s license or passport).
- Private data (such as your phone number and address).
After obtaining the necessary paperwork, complete and submit your application.
To open the account, some high-yield savings accounts could need a one-time deposit. If it does, finish the account opening process by transferring the required cash from your checking account or another funding source.
Use a High-Yield Savings Account to Accelerate the Growth of Your Funds
With few disadvantages, a high-yield savings account provides numerous financial advantages. Open a high-yield savings account to begin developing your savings if you don't already have one to help your money grow.
Check the interest rate on your ordinary savings account if you have one. Make the switch if it isn't earning you much money. Take some time to look at the current rates on a few high-yield savings accounts.
Ready to take action to reach your savings objectives? Contact Notebanks to find out more!