Saving money with a bank account always involves a list of processes. Whether a high-yield or a traditional savings account, the risks and benefits help us decide which one we must opt for. Most experts advise people to save money using various means and diversify funds to avoid losses.
High-yield and traditional savings accounts are some of the most secure ways to save money. However, their benefits and risks are different. One is excellent for long-term investments, while the other is suitable for short-term only. This article will help you understand these savings accounts in detail and decide which type best suits your needs.
High-Yield Savings Accounts Vs. Traditional Savings Accounts
You will notice differences when you compare high-yield savings accounts with traditional ones. Here are some of them:
Interest Rate
The interest rate is one of the most noticeable differences between these savings accounts. HYSA usually offers an APY or annual percentage rate of 5% for deposits, which is higher than traditional savings accounts. Also, APYs make HYSA interest rates variable, meaning they can increase or decrease at any time.
Maintenance Fee
Most traditional savings accounts do not charge a maintenance fee, but high-yield savings accounts do, and the fee can be up to $25 monthly. You can also avoid these maintenance charges by maintaining a minimum balance or linking your savings account with your checking account.
Transaction Fees
Sometimes, a bank or credit union might charge transaction fees if there are more than a certain number of transactions in a savings account. The fees are usually applied to both savings accounts, but the fine may differ for each account.
Inactivity Fee
Similar to transaction fees, a bank can charge an inactivity fee on some HYSA accounts. These fees are charged if a high-yield savings account sits idle for more than six months and has no deposits or withdrawals.
Read Related Article: High-Yield Savings Account Pennsylvania.
Minimum Opening Deposit
Some banks require a minimum deposit when someone opens a high-yield savings account. This minimum limit helps the bank ensure that the customer is serious about savings.
ATM Fees
Both HYSA and traditional savings accounts are types of savings accounts. Therefore, if the transactions via ATM are not limited, they will not have enough savings. Therefore, some banks charge an ATM fee for every transaction, while others charge one if you exceed the number of transactions in a month.
What Is a Traditional Savings Account?
Traditional Savings accounts are interest-offering accounts provided by banks and credit unions. Unlike HYSA, traditional savings accounts have fixed interest rates, and these rates are not affected by economic conditions. However, the withdrawal limits and transactions might be chargeable if the number of withdrawals exceeds a defined number.
A savings account is opened to save funds. Restricting transactions and withdrawals allows an individual to save more. With systematic savings, one can save for emergency funds or any other purpose they need to finalize. These savings accounts are a better option for long-term savings.
What Is a High-Yield Savings Account?
A high-yield savings account (HYSA) offers higher APYs than any other type of savings account. It is an excellent option for short-term savings, as it offers up to 5% APYs, which is much greater than traditional savings account returns. Online banks, offline banks, and many credit unions offer HYSAs.
HYSA also has some restrictions and rules. Some banks impose withdrawal restrictions, minimum balance requirements, fines, and penalties if rules are not followed. However, the funds deposited in HYSA are FDIC-insured up to $250K.
Read Related Article: Do High-Yield Savings Account Rates Change?
When a High-Yield Savings Account is Better
The most prominent reason one might select a high-yield savings account over a regular savings account is the higher interest rates and federal insurance of funds. Withdrawal limits and minimum balance compulsion make it better to save funds using a HYSA. One can select HYSA for its ease of accessing funds and better return policies.
A high-yield savings account is better if you save for a short-term goal and seek higher returns. These accounts offer online and offline transactions, making it easier to access funds in an emergency.
When a Regular Savings Account is Better
Regular savings accounts typically have fewer withdrawal restrictions than high-yield savings accounts. If you anticipate needing frequent access to your savings or want the flexibility to withdraw funds without penalties, a regular savings account may be a better choice.
Regular savings accounts often have lower minimum balance requirements or no minimum balance requirements at all. Many people are familiar with regular savings accounts and may feel more comfortable using them. If you prefer sticking with a familiar banking product or have an existing relationship with a bank offering regular savings accounts, it may be easier to manage your finances.
Read Related Article: Banks with High-Yield Savings Accounts.
Conclusion
Every person has a way to save funds for emergencies. Savings accounts are one of the most trusted methods of saving. However, with multiple types of savings accounts, it sometimes needs to be clarified which accounts to trust. The two main savings accounts are high-yield and traditional savings accounts. However, their benefits and differences offer customers a variety of savings options.
One must research properly before deciding on a savings account type. Beem is a finance app that can help you with emergencies for quick cash up to $1,000. One can trust Beem to calculate their credit score, get better financial feeds with Beem’s BFF, or explore high-yield savings with its app.
FAQs
Should I Have a High-Yield Savings Account and a Regular Savings Account?
A regular savings account is a safe option, but high-yield savings accounts offer higher returns and have Federal insurance up to $250K. HYSAs come with steeper minimum balance requirements and withdrawal limits, which are rare for regular savings accounts. Before opening any savings account, you must research which type of account serves your needs.
Are high-yield savings accounts better?
Opening a high-yield savings account can offer many benefits. These include FDIC insurance of deposits up to $250K, higher interest rates than any other savings account and easy access to funds in an emergency.
What is the disadvantage of high-yield savings?
The interest rates on a high-yield savings account are variable, which means they fluctuate according to the market at any time. Also, they come with a long list of restrictions, including withdrawal limits, minimum balance requirements, and certain fines if rules need to be followed according to the bank’s policies.
