What Are High Yield Savings Accounts?

A High interest savings account is an important aspect of every working class adult life. This is because it is one of the banking products which make savings worth it. The national savings interest rate of 0.46% will not cut it for anyone trying to save money with banks. It is hard to beat inflation with a 0.46% annual percentage yield on traditional savings accounts.

Hence, the importance of a high interest savings account. This is because the percentage yield in these accounts greatly exceed the national average interest rate in traditional savings accounts. A high yield savings account pays at least ten times more than traditional banks’ saving rates.

Traditional banks offer interest on their savings accounts, but the highest interest paying savings accounts are found with online banks. Often, online banks have these types of accounts, as a way of competing against the older and well-established traditional banks.

Having mentioned this, let us talk about high interest savings accounts which is also known as high yield savings accounts.

What Is the High Interest Savings Account?

A high interest savings account is simply a savings account with a high annual percentage yield. Annual percentage yield (APY) refers annual appreciation on whatever you deposit as savings on the account. Call it the interest rate offered by a bank on its savings account.

A high yield is usually offered by an online bank in order to attract customers from the well-established traditional banks. The best thing about this type of savings account is the annual percentage yield is at least 4% more than what the average brick and mortar bank offers.

Are high-yield savings accounts safe in a recession?

High-yield savings accounts are safe in a recession and during inflation. This is because their annual percentage yields compound faster than inflation rate. Even in a severe recession, these savings accounts with high interest rates will slowly compound to generate more than the capital savings.

Here is what I mean.

Forbes had the average inflation rate between 2012 and 2021 at 1.88%. In 2022, the annual inflation rate jumped to 8%, although it is lower this year. What all these mean, is money saved in the bank loses its purchasing value in these percentages. If the average inflation between 2012 and 2021 is 1.88%, your bank paying the national average interest rate of 0.46% on savings will help beat inflation.

This is especially, when you had withdrawn your savings in 2022 when the inflation rate was 8%. You would have lost 8% of your savings value. I mean you are going to withdraw exactly what you put, but the money will not purchase what it would have gotten you when inflation was low.

Do you understand the importance of a high yield savings account now, my good reader?

What To Look For In A High Interest Savings Account

What is a good interest rate on a high-interest savings accounts?

If you planning on savings with a bank, never save money with a bank with a low interest rates on savings. This is because there are online banks are out which offers ten times what our traditional US banks offer as savings rate. Here is what to look for in a high yield savings account:

1. Highest interest rate available. Go for interest rates more than 4%. Online banks offer at least 4% as a way of attracting new customers, especially the young working class adults.
2. No bank fees. The worst thing you want is for bank fees to eat up capital appreciation on your savings. Therefore, go for a high interest rate savings account with no banks fees.
3. FDIC insured. Make sure the savings account is insured by the FDIC for up to $250,000 per member.
4. Good customer services and convenient bank transactions. You want a high yield savings account where you will always have an easy access to your savings. Also, one which makes it easy to deposit or withdraw money.

Before you embark on saving with a bank offering a high APY, be sure all of these are covered. This is to make sure your money is safe. After all, this savings is a result of your sweat. Best to leave in safe hands. Would you not agree?

High Yield Savings Account Pros And Cons

Is it worth having a high-yield savings account, dear reader?

Personally, I would rather it since it beats what traditional banks are offering. However, it does not mean it does not have its pros and cons. There are some pros and cons of high-yield savings account.

What Are the Disadvantages Of A High-Yield Savings Account?

Here are the disadvantages of high-yield savings accounts:

1. Variable Interest rate. Most high interest rate savings accounts have a variable interest rate. What this means, is the earning on such account varies. The bank reserves the rate to increase or decrease the Annual Percentage Yield (APY) on such accounts.
2. Bank Fees. Some online banks may have fees which will eat into your savings earnings. Usually, these fees are from something else like withdrawal limit fees. They are not from having a savings account.

The above is the downside of high yield savings account. Besides these, there is no really a catch to a yield yield saving account. You just have make sure the high annual percentage yield savings account meets your savings and financial goals.

What Is Good About A High-Interest Savings Account?

The interest rate is the best thing about these types of savings account. 4% annual percentage yield is ten times the average interest rate brick and mortar banks pay on their savings accounts. So yeah, the interest rate is high up there as the pros of a high-yield savings accounts.

Here are other the benefits of a high interest account.

1. It beats inflation rate, due to its compounding interest year by year.
2. It is ideal for long term savings since the capital appreciation is noticeable.
3. Your savings are insured. You do not have to worry about losing your money.
4. No minimum deposit to start. Most of the online banks offering high interest account do not require a minimum deposit to open a savings account.

It is worth it to open a high interest savings account. Be sure your savings goals match what you are looking. That way, you get more benefits than cons.

What Is the Best High Interest Rate Savings Account?

The best high interest rate savings account is one that offers convenience as well as a high annual percentage yield. Notable online banks like SoFi, Ally, CIT and Discover banks offer a high interest rate of 4.60%, 4.25%, 4.65% and 4.35% respectively. I wrote an article a while ago about the best high interest rate savings accounts that will help you beat inflation. You can check it for more information about these online banks.

To simplify, these are the going rates for online savings accounts. You can find banks with higher rates than the above listed. Just make sure they meet the requirements I mentioned earlier.

How Long Should You Keep Money In A High-Yield Savings Accounts?

Given at least a 4% APY on whatever amount you decide to save, give it at least five years to see a substantial appreciation. This is especially, when you can live without the savings in the bank. Hence, why I recommend high yield savings for people strictly trying to save money.

Also, a high APY savings account works for long term and short term saving goals. Unlike a traditional bank which will give you $46 appreciation on a $2000 savings at an interest of 0.46% for five years. An average online bank will give $400 appreciation on the same savings at an interest rate of 4% for the same time period.

Now you tell me, which is better to save for a long term?

The longer you save, the higher your savings appreciate. The best part of a high-yield saving account is your savings will never be lost like with stock market or other volatile forms of investments. This is because your savings is with a bank who will not touch it. Unless the variable interest rate changes, it will not affect your savings.

Even when it changes, it still affects you positively because appreciation on your savings will be higher than the FDIC national average of 0.46%. As a working class adult, I recommend using high interest savings accounts to save money. Forget about using cryptocurrency, stock market and NFTs to save. If you are trying to save money through these, the risk of you losing your capital is 50% and higher.

As a working class adult, I recommend you save money this way. This is especially emergency funds, college funds or other financial saving goals you have. This is because at the end of the savings goal, you will have more than you put in. And, that is the beauty of a high yield savings account.