4 Questions You Should Be Asking About A High-Yield Savings Account

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High-yield savings accounts, or HYSAs, help grow your savings and provide competitive interest rates to those who leverage them for their finances. They’re great for emergency funds or funding your short-term goals, whether that’s a large purchase or vacation. What’s great about HYSAs is that they often have little to no fees, are easily accessible online, and offer federal insurance to protect your funds.
Overall, investing in a HYSA is a smart financial move as it stimulates monetary growth, long-term stability, and accessibility of funds. However, once you begin exploring different options for HYSAs, there are some fundamental questions you should ask first.
1. What's the difference between HYSAs and traditional savings accounts?
While both kinds of savings accounts help you build a solid financial foundation, the key difference between traditional savings accounts and HYSAs is the interest you earn on your savings for the year, otherwise known as your Annual Percentage Yield (APY). However, it’s important to remember that you should opt for a savings account that best suits your financial needs and preferences.
Traditional savings accounts: Traditional savings accounts can be opened at your desired financial institution, whether that’s a traditional bank or credit union. In terms of its APY, this type of savings account can earn anywhere between 0.01% and 0.35% in interest on your savings. Bear in mind that, like opening any account at a financial institution, you may be subject to fees or even keeping a minimum balance. However, traditional savings accounts are helpful for those who have a preferred financial institution and don’t want to commit to online banking.
HYSAs: Unlike traditional savings accounts, HYSAs are mostly only accessible through online banking institutions. However, if you don’t have a problem with online banking or switching banks, HYSAs offer excellent financial growth opportunities. With online banking institutions like SoFi offering up to 4.50% for its APY, you’re guaranteed savings and higher earnings whenever you deposit money. Compared to traditional savings accounts, HYSAs are the better alternative if you’re seeking to maximize your return on your savings investment.
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High-yield savings accounts can offer interest rates of 4% and above, offering a great option to keep some of your savings.
2. What are the benefits of getting a HYSA?
There are several reasons why one should consider investing in a HYSA. They’re just as stable and secure as a traditional bank account, offering an impressively higher yield. Ultimately, a HYSA bolsters your financial portfolio while helping you to save for expenses in addition to helping you build wealth over time to fund certain costs. Here are some worthwhile benefits you’ll see when investing in a HYSA:
Build an emergency fund: This is one of the most popular reasons for investing in a HYSA. Making regular deposits helps you build your savings faster, better preparing you for unforeseen expenses.
Save additional income: HYSAs are great for when you receive a financial incentive such as a bonus or gift. Saving excess income while accumulating interest is an effortless way to maximize your return.
Improve your financial security: During market volatility and economic uncertainty, a HYSA can provide you with a financial safety net should you experience job loss or other unforeseen financial calamity and help you avoid further turmoil.
3. What should I be looking for in a HYSA?
Of course, the more competitive an online financial institution’s offer is, the more likely you will receive a return on your investment. However, before signing up, there are some key factors to consider:
Interest rate: Of course, the interest rate will impact how much you earn when opening a HYSA. Seeing as how interest rates are subject to market fluctuations, the interest rate you’re seeking now may not be available in the future. So, it’s wise to look into your chosen bank’s terms and conditions for more rate information.
No fees: Like any financial institution, fees may apply to your HYSA. They may occur if your account drops below a specific balance, if you make too many monthly withdrawals, or for other reasons. However, that’s not to say that all HYSAs charge these fees. In fact, banks like SoFi boast zero fees when you open a HYSA with them.
Compounding interest: Compounding interest can directly impact how much your savings will earn in interest, whether it’s compounding daily, monthly, quarterly, or yearly. So, it’s essential to understand if a bank offers this and factor that into your decision.
FDIC insurance: If you’re wondering if losing money in an HYSA, like in the stock market, is possible, rest assured that savings deposited in an HYSA are protected by the Federal Deposit Insurance Corp (FDIC). If, for some reason, your banking falls through and you’re not able to retrieve your savings from your account, the FDIC will reimburse you up to $250,000.
Ease of access: For things like emergency funds, quick access to your funds is essential. There are different ways to transfer or withdraw money, and you should seek a banking institution that offers ATM access for easy cash withdrawal, a mobile app for easy money management, and the ability to link your checking account for a seamless transfer of funds.
4. What are some of the best HYSA banks?
Amex: American Express, or Amex, is a large-scale financial institution offering banking of all kinds. Its HYSAs are a competitive option for those looking to stick with big, traditional banks. With an APY of 4.25%*, they have no minimum balance requirement and allow you to start earning interest as soon as you open the account. Remember compounding interest? Amex offers that as well, allowing you to maximize your financial return.
SoFi: Social Finance, better known as SoFi, offers competitive interest for its HYSAs. When investing with SoFi, you can avoid the fees associated with HYSAs and traditional savings accounts, such as balance or overdraft fees. Even better, they give you $250 when you sign up for direct deposit and pay you two days earlier. Opening an account with SoFi is incredibly easy, and you can sign up right on their website.
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