Everything You Need to Know About High-Yield Savings Accounts
When it comes to saving money, where you save it can be almost as important as saving it. There are many different savings options available today. One that is often talked about is the high-yield savings account (HYSA). But what is a high-yield savings account and when is it the best choice for your savings?
What is a High-Yield Savings Account?
A HYSA is a savings account that has a higher interest rate than a regular savings account. According to Investopedia, HYSA interest rates are typically 20-25% higher than the interest rates of regular savings accounts. This higher interest rate allows you to earn more on your savings. Online banks typically offer the best rates on HYSAs. If you’re considering opening a HYSA, it’s important to understand the benefits as well as the downsides.
Benefits of a High-Yield Savings Account
One major benefit of a HYSA is that it allows you to earn more interest. This helps your money work harder for you and can help you reach your savings goals even faster.
Another thing that can be helpful for some people is that a HYSA allows you to separate out your savings. Because HYSAs are typically offered by internet-only banks, you often cannot open one at the same institution as your checking account. Having an account at another bank for your longer-term savings goals can help you separate these goals from your day-to-day finances. This separation can keep you on-task and ensure that your savings are used for your intended purpose.
Even with accounts at multiple banks, it is still easy to transfer funds. Typically, HYSAs at internet banks will allow for electronic funds transfers to and from your regular bank. This is helpful because it makes contributing to your HYSA easy. You can also often use the bank app to deposit checks into your HYSA. This access is helpful when your accounts are at different institutions.
Drawbacks of a High-Yield Savings Account
When considering a HYSA, it’s important to also understand some of the drawbacks. Some HYSAs have more rules that regular savings accounts. They may require you to meet an initial minimum required deposit to open an account. When you are just starting to save money, this can create an unnecessary challenge. HYSAs also sometimes have account maintenance fees and other charges. These charges and fees may cancel out the benefits of the higher interest rate.
One big drawback of some HYSAs is the time that it can take to transfer funds from your savings to your everyday checking account so that you can use them. The time that these transfers take is heavily dependent on which banks you are transferring to and from. This is definitely a part of a HYSA that you’ll want to understand when you open your new account.
It’s important to note that like all savings accounts, HYSAs are subject to the banking regulation known as Regulation D. This limits certain types of transfers and withdrawals to and from the account to six per month. Make sure that you understand these limitations when moving money in and out of your savings accounts.
Final Thoughts on High-Yield Savings Accounts
Overall, the HYSA is becoming more common in the personal finance community. A higher interest rate can help your money work harder for you.
HYSAs are a good place to save for your bigger goals like buying a house, buying a car, or taking a trip. Depending on the transfer times for you to access your funds, a HYSA could also be a good place to save your emergency fund.
As with any financial product, when you think about opening a HYSA, be sure that you do your research. Find the best account for your particular situation that will work as an integrated piece of your financial plan. Consider the fees, minimum required deposit, and whether you need access to a debit card or ATM for the account as you pick which institution to use. A high-yield savings account offers you a great savings opportunity with a higher interest rate. It might fit in well with the rest of your personal financial plan!