Should I put money in a high-yield savings account over a CD or money market?
Lower interest rates on credit cards and loans are good news for borrowers. But you may have noticed the money in your savings account isn’t earning the interest you hoped for.
With recent rate drops, you may be wondering if a high-yield savings account is worth it. High-yield savings accounts collect more cash than traditional savings accounts — but what about a CD or money market account (MMA)? Should you put money in a high-yield savings account?
High-yield savings accounts are typically the best choice. Here’s why.
Is a high yield savings account worth it?
Earnings on high-yield savings accounts are hovering at about 1% APY. The average interest rate in September 2020 on standard savings accounts is just 0.05% for balances below $100,000, as reported by the Federal Deposit Insurance Corporation (FDIC).
Despite the recent rate drop, high-yield savings accounts are still a safe option to grow your money. They are FDIC-insured or NCUA (National Credit Union Administration)-backed for deposits up to the allowable limit at FDIC-member banks.
According to Credible, some brick and mortar bank branches offer high-yield savings accounts but most are only available from online banks — so you can browse your options here.
High-yield savings accounts are often a better choice than a CD or MMA for a few reasons:
- They offer a higher APY than traditional savings and some MMAs
- You can access your money up to six times per month (unlike a CD)
- You don’t have to maintain a minimum account balance like with an MMA
- You won’t pay monthly maintenance fees or early withdrawal penalties
You can find the best high-yield savings account offers via Credible. Credible can tell you each financial institution’s minimum account balance requirement, APY and whether an account is available in-person, online-only, or both.
PROS AND CONS OF HIGH-YIELD SAVINGS ACCOUNTS
High-yield savings vs. CDs vs. money market accounts
High-yield savings accounts, CDs, and MMAs each have advantages and drawbacks. Here’s everything you need to know about each savings account option.
What is a high-yield savings account?
High-yield savings accounts pay you higher interest or APY on your deposits. They function much the same as a traditional savings account, but because of compounding interest and a higher APY, your money grows faster.
For instance, if you deposit $10,000 in a savings account at the national APY of .05%, you would earn just $5 in one year. However, if you instead put that same $10,000 in a high-yield savings account that earns 2%, you’d make $200.
One of the biggest drawbacks is the limitation of six withdrawals or transfers per month. Anything over six, and you’ll pay a fee and risk having your account closed. However, due to the coronavirus pandemic, the Federal Reserve Board has temporarily suspended this rule. You can now make an unlimited number of transfers or withdrawals without being charged fees.
If you’re looking to save even more cash, then opening up a high-yield savings account is a good bet. Let high yield savings accounts do the work for you. Open one up today.
HOW ARE HIGH-YIELD SAVINGS ACCOUNT DIFFERENT FROM TRADITIONAL?
Pros of high-yield savings accounts:
- Higher APY than traditional savings accounts
- FDIC-insured
- Up to six withdrawals or transfers per month
- Compounding interest
Cons of high-yield savings accounts:
- Rates can go up or down and are determined by the federal funds rate
- Six withdrawals or transfers per month without penalty
What is a CD?
A CD, certificate of deposit, is a lump sum you deposit into a bank or credit union that stays in your account, untouched, until it reaches maturity. A CD pays higher interest rates than many savings or money market accounts, they offer a guaranteed rate of…
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