What is a High Yield Savings Account?

December 9, 2019

With the accessibility of information out in the world, savers are able to make more financially savvy decisions about how to earn, invest, and store their money. What may have once been an intimidating subject, is now something more people can take an interest in and make the right decisions for themselves.

With this said, it’s no wonder people are looking for more ways to leverage what their money can do as it sits in its account. High yield savings accounts offer a greater holding place for users to safely store their money and accrue more interest than a traditional savings account yet have more access than a certificate of deposit.

So, how do high yields savings accounts work?

The average traditional savings account offers an interest rate of 0.09%. This means, over the course of a year, if you have a $100 sitting in a savings account with this interest rate, and you don’t contribute any money, your year’s yield will be nine cents. This figure is considered low and can be chalked up to changes made during the Great Recession.

High yield savings accounts tend to have higher APYs (Annual Percent Yields) as a result of higher interest rates. While a traditional savings account might offer an interest rate under one percent, a high yield savings account might offer something ranging from 1% to 1.35% or more. In the example illustrated earlier, if you have that same $100 sitting in a savings account, don’t contribute any money during the year, and have an interest rate of 1.35% your year’s yield from the interest rate will be $1.36. While this seems like small change given the lower figures of the example, this higher APY makes a difference with higher sums.

Why would I consider a high yield savings account?

While you can increase your passive income by opting for better APYs and interest rates for your savings accounts, you’re likely not going to get rich off of putting your money in a high yield savings account. However, every savvy decision you make is a step in the right direction.

Your money can work for you just as you work to earn more money. You may want to consider a high yield savings account if:

  • You have a large sum of money that hasn’t yet found a proper home
  • Rainy day fund
  • Emergency fund

Generally, a high yields savings account is a good place to store your money as long as your provider is FDIC insured and you’re comfortable with what they’re offering. A high yield savings account could be a way to buy you time as you figure out the best place to put money or it could be the place you store money that you don’t intend to use presently but may need to have access to shortly.

Figuring out which provider offers the best high yield savings account for your needs depends on a few factors: the interest rate you’re seeking, the minimum balance you have to open the account, and how often you might want to take money out of the account.

A high yield savings account could be a great stepping stone into the more complicated world of investing or researching interest rates as they pertain to your specific financial situation. Whatever you decide, make sure your money is working for you.

Personal finance is not just how you save your money but how you spend your money, too!

With travel season around the corner, you’ll want to make sure your money stretches as far as possible. Take a look at our seven tips on how to save money on flights.

Still short on cash? Illinois Lending is here and happy to help you with your money troubles. We provide a better way to borrow so you can skip the payday loan and get money in a way that works best for you. Learn more, today!

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