High yield savings account: should you get one?

Having some extra cash and not wasting it on quick pleasures is hard! That’s why so many people are after savings accounts or, more specifically, a high yield savings account, to save up. Some people that are new to finances might be tempted to just save up in their traditional bank account, which is a big mistake. 

While the money sits there, it gets mixed up with your expenses and, at the end of the day, it won’t really be an advantage. Saving up can be complex, but the right savings account will save you time and bring more profit than expected. Find out everything about a high yield savings account below! 

What is a high yield savings account? 

A high yield savings account is a term that’s gaining popularity in the finance world. Their main advantage is earning higher interest than conventional accounts, which is really important to get more return from your investments. 

A traditional savings account can yield around 0,01% most of the time. Which means that for every US$1.000 invested, you earn only US$0,10. It is a very small amount, right? That’s what investors started to notice, when they decided to put their hard earned money elsewhere. 

That’s why so many people have been choosing to invest in safe, but higher return investments, such as: 

• Certificate deposit; 
• Money market account; 
• Peer to peer lending; 
• Exchange traded funds (ETF).

The only downside of these choices is that your money won’t be immediately accessible in case of emergencies. That’s where a high yield savings account comes in: it yields a higher interest, up to 0,09% sometimes, and allows you to access your savings quickly. 

Benefits of a high yield savings account

Are you still in doubt about opening a high yield savings account? Interest rates are definitely higher, but there are other advantages you must consider when taking this decision. We explained everything in detail below so you can choose wisely. 

1. Better returns than traditional savings account

As we said above, a traditional savings account barely yields any return. Even if you keep money invested for a long time, you’ll get small returns and would’ve been better off investing in something else. 

Interest rates are certainly the main attractive of the high yield savings account, making it the go to option for your emergency savings. If you search well, there are high chances of finding an investment that yields up to 1% interest rates. 

2. A high yield savings account compounds interest daily

Are you a new investor? Then we have to tell you incredible news, a high yield savings account compounds interest every day. Which means that, unlike what happens with other investments, you can start small and put more money whenever you feel like it without losing a lot in terms of interest. 

This way, it’s easier to plan your savings. You can put a small sum weekly to make sure you don’t sabotage your own investment. Waiting to get a good amount can make it hard to actually achieve your saving goals. 

3. It’s a low risk type of investment 

Most high yield savings account types are incredibly safe! At least if you choose one that’s FDIC-insured. The FDIC, Federal Deposit Insurance Corporation, is an independent agency that acts to protect depositors. That means you can get your money even if the bank files for bankruptcy or any other disaster happens. 

Another advantage: you don’t have to worry about purchasing this insurance, it’s automatic for any institutions linked to FDIC. Deposits are insured by up to US$250.000 per bank and ownership category. Find out more about insurance on the official FDIC website. 

4. Easy to manage money on the go 

Imagine you have US$10.000 sitting in a savings account, compounding interest and getting you a moderate return. Then something happens, you go through a car crash and need the money right now, it could take one or two days to get in other investments. 

That’s why you can use a savings account as a type of emergency savings. When something happens and you need the money you can manage it through your bank app or internet banking. 

It’s also perfect when you find a great investment and want to relocate your money quickly. 

So, is a high yield savings account worth it?

After we listed all of these benefits you might think a high yield savings account is the best investment option available. But it’s important to highlight this type of service also has its downsides that must be considered. 

If you’re saving up for a large purchase or trying to establish an emergency fund, they’re your to go choice. Since the money can be accessed easily, that means you can use it for any day to day problems that arise. Just be careful, you don’t want to reach for your savings all the time, or they’ll lose their purpose. 

While the interest rates on this service is better than a conventional savings account, there are best options around. We recommend you analyze your investment style and decide if you’re alright with leaving your money alone for some time (months or years, you decide). There are other options that yield better returns, but you can’t move your investment around like with your savings. 

Learn to find the best high yield savings account

There are hundreds of options for anyone looking for a high yield savings account. Does that mean that you can just pick the first one you find on your Google Search and get started? That isn’t the ideal, since there are fundamental differences between each account, including fees and interest rates. 

We prepared a step by step guide to help you find the best option. Keep reading!

1. Do your research on savings account rate

The first step is to find out the interest rates for most savings accounts you can find. Sometimes, a salesman can try to hook you in with an account that yields low interest, but you won’t notice unless you’ve done your research previously. 

Most conventional savings yield around 0,01%, while high interest ones yield 0,06% to 1%. Did you notice that there’s a big difference? That’s why comparison is important. Check out your local banks, as well as online banks and some credit unions. 

When you’re reading about this kind of account you’ll find many sites recommending you focus on online banks. While it’s true they often offer the highest interest rates, traditional physical banks also have their perks. Sometimes, you can get better rates and advantages when you hire other services with them, such as mortgages. 

So here’s an important tip: start with your current bank, especially if you’re using many of its other services. 

2. Choose your institution carefully

Not all financial institutions are born alike. Some can seem attractive at first glance, offering high rates and advantage packages, but you’ll eventually find out they weren’t insured. Prize your money’s safety by trusting only FDIC-related companies. That’s the only way you can make sure you’re safe, even if something unexpected happens. 

3. Compare as many high yield savings account online

There are plenty of high yield savings account online that offer better rates than other institutions. Some old school investors still don’t trust online banking, but you can rest easy, it’s just as safe and really practical. 

While on your search check other information beyond interest rates. They are certainly the most important aspect, but there are also fees that can make your investments earn a lot less. After you know all costs associated with an account, you can make a better decision. 

The ideal bank has no fees (or low fees that won’t weigh heavily on your returns) and helpful services and tools. Easy transfering of money and a user-friendly app can make a lot of difference!

4. Avoid tiered interest rates

Tiered interest is a type of “benefit” that financial firms might offer their clients when opening savings accounts. When an investor puts a high amount of money in this type of account, such as US$10.000 or US$20.000, they can get a higher rate than others. 

While it may sound like an advantage if you have a lot to invest, it keeps you from putting money elsewhere with higher rates. Anyone looking for a varied investment portfolio should choose accounts that yield the same rates for all. 

5. Check if the high interest rate is long lived

Be mindful of short lived advantages! Have you ever seen a gym that sells memberships at really low costs for the first couple of months, that turn into full cost ones after that? Banks and credit firms do the same with savings accounts to increase sales. 

They offer impressive interest rates at first, sometimes a lot higher than the competition. Or they might interest you on free extra services and no fee accounts that don’t really last. After the first few months you’ll notice a decrease in earnings or start paying fees you didn’t originally intend to.