Definition
A High-Yield Savings Account is a type of savings account that earns higher interest than a regular savings account. It is offered by banks and credit unions and often requires a higher minimum balance. This account is ideal for individuals who intend to save for a long term as it allows your money to grow at a much faster rate due to the high interest.
Key Takeaways
- High-Yield Savings Accounts typically offer a much higher interest rate than a regular savings account. This means the money in a high-yield savings account will grow faster due to the compound interest.
- These accounts are generally offered by online banks. Because these banks don’t have the overhead costs that come with branches, they can afford to pay higher interest rates.
- Since High-Yield Savings Accounts offer higher interest rates, they are a perfect tool for growing your money over time and are excellent for emergency funds, long-term savings goals, and other savings projects.
Importance
The finance term “High-Yield Savings Account” is important because it refers to a type of savings account that offers a significantly higher interest rate compared to a regular savings account.
This is crucial for savers because it means that the money deposited in such an account will grow at a faster rate due to the compounding effect of the higher interest.
This can be an effective tool for wealth accumulation and reaching financial goals quicker.
It encourages saving habits, provides a more substantial return on your investment, and often comes with added benefits such as easy access to funds, online account management, and the security of insurance through the FDIC or NCUA.
It’s an optimal way of saving money while also ensuring your finances aren’t idle but are instead contributing to your economic stability and growth.
Explanation
A High-Yield Savings Account (HYSA) is a type of savings account that is intended for individuals or businesses who want to derive a higher return on their unused or surplus funds. The primary purpose of a HYSA is to provide a higher interest rate compared to a regular savings account, thereby accelerating the growth of your money over time.
By keeping funds in a HYSA, users can earn more profit from their idle money, which can be a great source of passive income or help them reach their financial goals faster. High-Yield Savings Accounts are usually used for longer-term saving objectives where the funds aren’t required to be accessed regularly.
For example, they are often utilized for emergency funds, college savings, down payments for a house, or any other financial goals where capital protection is of utmost importance. The interest earned from a HYSA can significantly contribute to these financial commitments.
Therefore, instead of leaving large sums of money in a standard checking account or underutilized, a HYSA can be a smart choice to put your money to work.
Examples of High-Yield Savings Account
Ally Bank High Yield Saving Account: Ally Bank is a well-known online bank that offers a high-yield savings account. Their interest rates tend to be significantly higher than traditional brick-and-mortar banks, and there are no monthly maintenance fees or minimum deposit requirement.
Marcus by Goldman Sachs High Yield Saving Account: Goldman Sachs, a renowned Investment Bank, through their online platform – Marcus, offer a high-yield savings account which usually offers above-average interest rates. There are no transaction fees or minimum deposit requirements.
American Express High Yield Savings Accounts: Known for its credit card business, American Express also offers high-yield savings accounts to consumers. They provide competitive interest rates and there are no minimum deposit requirements or monthly fees. Like several other high-yield savings accounts, the account is conducted almost entirely online.
High-Yield Savings Account FAQ
What is a High-Yield Savings Account?
A High-Yield Savings Account is a type of savings account that earns higher than average interest on the balance held within it. Banks and financial institutions offer this type of account as a way to incentivise saving.
What is the benefit of a High-Yield Savings Account?
The main benefit of a High-Yield Savings Account is the possibility of earning a higher return on your money over time. The exact rate may vary depending on the bank, the size of the deposit, and market conditions.
How do High-Yield Savings Accounts work?
Interest is typically compounded daily on a High-Yield Savings Account and paid out monthly. This allows the account balance to grow at a faster rate than it would with an account that compounds interest less frequently.
Are High-Yield Savings Accounts safe?
Yes, High-Yield Savings Accounts are generally safe. They are typically insured by the Federal Deposit Insurance Corporation (FDIC) up to a certain amount, providing a level of safety for your money.
How do I open a High-Yield Savings Account?
To open a High-Yield Savings Account, you can apply online or visit a branch of most banks. You may need to provide some personal information and meet the minimum deposit requirements, if any.
Related Entrepreneurship Terms
- Interest Rate
- Compound Interest
- Liquidity
- Online Banking
- FDIC Insured
Sources for More Information
- Investopedia: A comprehensive website that covers a wide range of topics related to finance and investment. It offers definitions of terms, articles, and resources to further understand financial concepts.
- NerdWallet: NerdWallet serves as a personal finance website that provides information about credit cards, investments, insurance, mortgages, loans, and savings. It also offers comparison features for various financial products.
- Bankrate: This website provides free rate information to consumers on more than 300 financial products, including mortgages, credit cards, new and used automobile loans, money market accounts, certificates of deposit, checking and ATM fees, home equity loans, and online banking fees.
- The Motley Fool: A company that provides financial services, including analysis and commentary on the stock market and investing. They offer a Daily Fool service with free advice and insights for investors.
