You can open a high-yield savings account at many credit unions and banks. These accounts offer an APY 10-12 times more than traditional banks. Apart from the high interest rates, these accounts work like other savings accounts. All you need to do is fill out an application form, submit the required documents, make a minimum deposit, and open an account. Based on the money deposited, the banks pay you an APY. Though this happens at the click of a button, having a high-yield savings account has pros and cons.
A high-yield savings account gives higher interest rates as a return, but some of these accounts require a fee, you must maintain a minimum balance, and the interest rate fluctuates over time. Before you open a high-yield savings account, read on to learn its pros and cons.
Pros of High-Yield Savings Accounts
High-yield savings accounts have the following pros that can benefit the account holder.
Earning Potential
High-yield savings accounts are known to be a place for safe investments. You get to earn good returns and grow your money faster over time.
Liquidity
A high-yield savings account will help you easily access your money anywhere and anytime. There is flexibility with withdrawal, transfers, and depositing money anytime. Liquidity isn’t a problem with high-yield savings accounts, which make them useful during emergencies.
Security
How secure is a high-yield savings account? When you open a high-yield savings account with a credit union or bank that is insured by the FDIC (Federal Deposit Insurance Corporation) or the NCUA (National Credit Union Association), your funds are protected and secured. This is based on the maximum amount allowed by law per type of deposit account per insured institution.
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Cons of High-Yield Savings Accounts
Here are a few cons that might affect when you have a high-yield savings account.
Interest Rate Fluctuations
The interest rates on high-yield savings accounts can vary and fluctuate at any time. So, if you notice a bank advertising a high APY when applying, know that it won’t be the same throughout. The fluctuation of interest rates is usually based on market conditions and the firm’s financial policies.
Limited Earning Potential
Though high-yield savings accounts give good interest rates, they can be risky too. Sometimes, these rates may not beat inflation, which can be risky. During high inflation, these accounts can be at risk and get affected.
Withdrawal Limitations
It depends on your financial firms to make withdrawals convenient. Some of these firms have limitations to withdrawals and transfers made in a month. Some financial institutions can charge you fees if you make too many electronic transfers. Such charges can prevent customers from taking money out of their savings accounts.
Who Can Benefit from a High-Yield Savings Account?
If you’re looking for additional savings and college funds, a high-yield savings account is beneficial and can help many individuals achieve their financial goals, such as emergency and short-term savings.
Read Related Article: How Does a High-Yield Savings Account Work?
Conclusion
A high-yield savings account can be useful during emergencies and when reaching short-term savings goals. Though a high-yield savings account offers better interest rates than a traditional one, it has pros and cons. It offers benefits like good returns, high interest rates, accessibility, and security, but it also has downsides like minimal transfers and withdrawals, fee charges, and interest rate fluctuations. Before you open a high-yield savings account, it is important to know these factors. To boost and support your finances, download the Beem app.
FAQs
Is there a downside to a high-yield savings account?
Though there are positives to having a high-yield savings account, there are downsides, like limitations to the number of monthly withdrawals. You might have to pay some fees too. There might be fluctuation in the interest rates over time.
Are high-yield savings accounts safe in a recession?
Unlike investing in stock markets, if a recession causes short market volatility, you won’t lose your money on your high-yield savings deposits. No matter what, APYA will be functioning for you. Irrespective of what the economy is doing, your money will remain safe in a high-yield savings account.
Do millionaires use high-yield savings accounts?
Yes, millionaires like high-yield savings, but not as much as compared to the other accounts they hold. These high-yield savings accounts have gained popularity among many, including millionaires.
