Depending on your financial goals and how you manage your money throughout the year, you may benefit from a number of different banking accounts and products. One such product to consider is a high-yield savings account (HYSA).
As the name suggests, an HYSA is a depository account at a bank, credit union, or other financial institution, which offers a higher-than-average interest rate on the balance held.
Unlike checking accounts — which are designed for everyday purchases and spending — HYSAs are classified for savings. This means that you are federally limited in how many withdrawals you can make each month - currently no more than six. If you exceed this withdrawal limit, you may have your account closed, incur penalty fees, or be converted to a transactional account like a checking account.
The trade-off is that your money can grow at an exponentially faster rate when it’s left in a high-yield savings account, serving to amplify your returns on any funds deposited. This makes HYSAs a popular option for consumers looking to tuck their savings away in a safe place and earn compound interest on the balance.
But with many online and brick-and-mortar institutions offering high-yield savings accounts today, how do you decide which one is right for you?
What to Consider When Looking for a High-Yield Savings Account
If you’re shopping around for an HYSA, here are a few things to consider which may help you choose the right account for your specific needs.
If you’re in the market for a high-yield savings account, odds are you’re interested in the yield (or return) on that account. In fact, this might be the most important factor for many consumers, especially those looking to maximize the interest earned on their savings.
To compare yield, look at each account’s advertised APY, or annual percentage yield. While this number can, and often will, change throughout the year, it’ll give you a good idea of which banks are offering higher interest rates than average.
For example, if you put a $5,000 initial deposit into a savings account offering 0.50% APY — and make no additional deposits — you can expect to earn about $26 in interest on that money over the course of the year. However, if you put those funds in a high-yield savings account with a 2.25% APY, you would earn about $114 in interest instead.
Monthly maintenance fees are found less commonly on savings accounts than checking accounts, but it’s still important to check that the HYSA you choose doesn’t charge them. If there are fees, they can eat into any interest you may earn on your balance, negating the benefit of choosing a high-return account in the first place.
In many cases, even accounts with maintenance fees, allow for them to be waived as long as you meet deposit or minimum balance requirements each month.
Many savings accounts — especially those with enviable interest rates — require a minimum initial deposit. Depending on how much money you have on hand to open your account with, you may find that some HYSAs aren’t available to you.
Other types of minimums you may encounter include:
Deposits — Some banks will require you to make a certain number (or dollar amount) of deposits each month in order to keep your account active and/or avoid monthly fees.
Balances — You may be required to maintain a minimum monthly balance in your savings account. Allowing your balance to drop below this threshold could trigger fees and/or reduced interest rates.
Most major banks provide Federal Deposit Insurance Corporation (FDIC) coverage, which offers protection to consumers on the balances held in their depository accounts. Credit unions can be protected by the National Credit Union Administration, or NCUA. If the financial institution were to fail, your money would be insured up to a certain limit.
Be sure to check that your bank indeed offers this deposit insurance, and what sort of limit you’re offered based on the type of account, who else is on the account with you, and any other products you hold with that same institution, to ensure that your savings are protected.
How do you plan on using your savings, and how often do you expect to withdraw funds?
You may want simple access to your money, to be able to transfer funds out as needed. In this case, you might want to choose a HYSA at a bank you already use, a local institution, or even an online bank that offers easy ACH transfers with just a few clicks.
On the other hand, many consumers actually prefer to have their savings a little out of touch. A delay on transfers or added steps between you and that money can be a deterrent for spending, and may even help save you from impulse purchases.
Be honest with yourself about how much access you need to your savings and how important liquidity is when choosing the right high-yield savings account for you.
How will you be depositing funds into your savings account? Do you plan to initiate transfers online, or will you need to withdraw large amounts of cash?
Many HYSAs are offered by online banking institutions, which can be a great option for tech-savvy consumers. However, if you need, or prefer, an in-person experience, you’ll want to find a bank that has brick-and-mortar branch locations in your area.
Choosing the Best HYSA for You
The right high-yield savings account for you might not be the best choice for your neighbor, your sibling, or even your best friend. Choosing an account that minimizes fees and maximizes interest is the top concern for most consumers. However, be sure also to consider how you’ll manage that account and which features are most important to both you and your money.
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