High-yield savings accounts have been around for decades, but they’re not something that most people think about a lot. So if you know what a high-yield online savings account is and why it’s different from a normal savings account, then you can decide if one is right for your needs.
What are high-yield savings accounts for?
High-yield savings accounts are designed to earn more interest than regular savings accounts. You can use the money you put into a high-yield savings account for a variety of purposes, including:
- Saving for a specific goal, like buying a car or paying down debt.
- Earning interest on the money you don’t need to use right now. Suppose you have some extra cash that should be earning interest in case you need it. In that case, this is an ideal place to keep it—but not so much that it’s putting more stress on your finances by tying up funds in an account with limited access and even less flexibility (for example, if your checking account gets overdrawn).
- Earning interest on money that isn’t quite ready for prime time yet but needs somewhere safe and secure to grow until it’s ready for regular use (such as having extra funds sitting around after regularly contributing toward retirement).
How do high-yield savings accounts work?
High-yield savings accounts are designed to be a safe place for your money. They’re meant to provide you with a reliable return on your investment, but not so much that it would make you rich. You can think of them as being similar to CDs in that they offer higher interest rates than most other types of accounts but also carry more restrictions (like not being FDIC insured).
High-yield savings accounts don’t come with any guarantees—they aren’t federally insured like traditional banks or credit unions—but they tend to be backed by large financial institutions and are therefore considered relatively safe. In fact, most high-yield savings account interest rates are comparable, if not better, than other bank accounts such as checking and savings accounts or even CDs! Professionals like Lantern by SoFi say, “Choose the savings account that’s a perfect fit for you.”
Are there risks of having a high-yield savings account?
There are a few risks associated with having a high-yield savings account. First, you could lose money if you withdraw before the maturity date. For example, if you open a 10-year CD and then withdraw your money after seven years, the bank won’t pay out interest on the last three years of the term. This can be expensive since most banks will charge an early withdrawal penalty as well.
Second, some banks may deduct fees for early withdrawals or account maintenance (for example: if your balance drops below $10). Lastly, tax laws regarding interest earned on savings accounts vary from state to state—so check what type of taxes apply in your area before opening one!
You can get more interest if you have a savings account with a bank or credit union. There are two main types of high-yield savings accounts: money market accounts and savings account linked to a CD (certificate of deposit). Money market accounts usually offer higher interest rates than regular savings accounts but have lower minimum balances and don’t require the customer to lock up their funds for an extended period.
A CD is like tying up your cash in exchange for earning interest over time – but remember that there are penalties associated with withdrawing funds before the maturity date and fees if closing early before reaching the maturity date!