High-yield savings accounts can help you earn higher returns on your money. They are a great place to store funds for emergencies or other needs, while also allowing your money to grow on its own.
However, with so many banks and credit unions offering high-yield savings accounts, determining which one is best for you can be challenging. Understanding what to look for when choosing a high-yield savings account is crucial.
The first thing you should look at is the Annual Percentage Yield (APY). APY, or interest, refers to the amount you can earn in a year.
You want a higher APY for better returns. When comparing high-yield banks or credit unions, compare their APY rates. A high APY is often the primary reason for choosing a particular account, so it’s worth your time to investigate.
According to data from the Federal Deposit Insurance Corporation (FDIC), as of November 2024, the average APY for banks was 0.43%. However, many banks fall below this number. For instance, Chase Bank offers an APY of 0.01%, and TD Bank offers 0.01% to 0.05%.
High-yield savings accounts offer much higher APY rates. For example, as of November 2024, Ally Bank had an APY of 3.85%, while Capital One 360 offered 3.9%. It’s worth noting that lower APY rates typically come from traditional brick-and-mortar banks, while higher ones come from online banks.
But don’t overlook credit unions, as they also tend to provide high-yield savings accounts. For instance, the Affinity Federal Credit Union offers a 4% APY, and KeyPoint Credit Union provides a 4.85% APY.
For many people, choosing between a digital financial institution or a traditional one is essential. When looking for high-yield savings accounts, you must research the types of banks or credit unions available. Are you willing to use a purely digital bank?
If you prefer traditional banks, your options may be limited. Consider a credit union, as many of them offer high-yield savings accounts. Otherwise, you might need to explore digital banks more thoroughly.
Understanding the frequency of compound interest is crucial if you want your savings to grow faster. It can compound daily, monthly, or quarterly.
The higher the compounding frequency, the faster your funds will grow.
Check the bank’s website to verify if the institution’s deposits are insured. If a bank does not have FDIC insurance, it may not be a good choice. Chosen credit unions must have purchased NCUA insurance.
FDIC and NCUA provide up to $250,000 in insurance per category of depositor.
Excessive or high bank fees can eat into your savings. For example, many banks and credit unions charge maintenance fees, usually on a monthly basis. Some of these fees can go up to $25 per month.
Some banks and credit unions also impose minimum balance fees, which can be challenging for beginners in savings.
Digital banks typically do not charge minimum balance fees.
Some high-yield savings accounts require a minimum deposit to open an account. This is essential when comparing banks or credit unions.
Minimum deposit amounts vary but generally range from $25 to $100. However, some financial institutions may require $1,000 or more.
With enough minimum deposit, you can earn more income from high-yield financial institutions than low-yield ones. But if you’re just starting, this can be challenging.
The frequency at which you can withdraw funds varies by financial institution. Some institutions limit free electronic transfers and withdrawals. Your monthly limit might be 6 times or fewer.
Ensure you understand this. If you need emergency funds but can’t withdraw, it could put you in a tough spot.
You should know how much money you can transfer out of your account daily, weekly, etc. Be sure to know how long it takes to receive transfers from your high-yield account.
Many high-yield savings accounts, such as digital banks, may not have a widespread ATM network. This means you may have to use an ATM outside the network, typically costing you $2 to $5. If you are a heavy ATM user, this fee can add up quickly.
Understanding if there is an in-network ATM and how extensive its coverage is essential. Check if there is an ATM available in your area.
If the network is limited or absent, you may run into difficulties while traveling.
Make sure the financial institution you are considering has good customer service. Look at reviews to see what past customers have to say.
Many banks and credit unions have phone numbers or online chat tools you can call for assistance. Digital banks also offer online chat features, and many (but not all) provide phone numbers for help.
The difference in APY rates between high-yield accounts and traditional bank savings accounts is significant. If you only need a place to store your emergency savings or regular savings, it is wise to earn as much interest as possible.
Do some research and find the financial institution that suits your needs.