A study conducted by Bankrate showed that only 23% of Americans have an emergency fund. That is a very alarming fact, since having a rainy day fund is crucial for a person’s financial wellbeing.
You can put your funds in many types of investments for this type of financial goal, such as certificates of deposit, money market accounts, Roth IRAs, and 401ks, but one of the best options, and with the lowest entry point is savings accounts.
There are two main types of savings: traditional and high-yield savings accounts. Many people who save money are actually losing potential interest revenue by keeping money in their checking account using standard savings, because they don’t know they have the option of easily opening a high yield savings account. Keep reading to find out more about it.
What is a High-Yield Savings Account?
A high yield savings account offers a lot more attractive rates than standard savings accounts. They pay 20 to 25 times more. They are typically offered to clients who have a solid relationship with their bank. They are also more easily found through online banks. Keep in mind that online banks typically offer better benefits than regular banks with branches.
Regular vs. High-Yield Savings Accounts
Now let’s compare the rates offered by standard savings accounts versus high yield savings accounts. If you deposit $10,000 in a traditional savings account at a rate of 0.01%, you’ll have $10,001 at the end of the year. On the other hand, if you deposit the same amount in a high-yield savings account with an APY of 1.35%, you will have $10,135.84.
Is it safe?
A savings account is one of the safest investments a person can make. The great majority of these types of accounts are insured by the Federal Deposit Insurance Corporation on up to $250,000 per depositor, per insured bank. It is crucial to always check if the bank you want to open an account with is insured by the FDIC.
High-yield savings accounts are great for people who are looking to save money for the near future, which might be needed urgently. Experts suggest maintaining at least six months to a year of expenses in savings.
If you have difficulty saving money, it might be a good idea to search for banks who offer you the option of setting automatic transfers to savings, so that you are less tempted to spend the money somewhere else.
Keeping funds in a traditional savings account or even in your checking account will make you lose potential revenue.
When searching for an account, it is necessary to take into consideration if there are any fees involved with maintaining it, if you can get immediate access to your funds, or if it will take some time, if you’ll get access to a debit card to withdraw your money, or if you will need to transfer it to a checking account, and how many withdrawals you can do in a month.
Another factor to take into consideration is how big of a deposit you will have to make to open it and if there is a monthly minimum requirement.