A high-yield savings account has both risk and reward. They offer higher APY than most traditional savings accounts. (iStock)
High Yield Savings Accounts currently have much higher interest rates than traditional Savings Accounts that pay only 0.05% Annual Yield Yield (APY). High-yield savings accounts have an average annual interest rate of about 1%, or about 25 times the national average. High Yield Savings Accounts are similar to Standard Savings Accounts, but pay a higher APY.
Accounts are federally insured with banks and credit unions by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). A high-yield savings account charges almost no monthly fees and gives you easy access to your money up to six times a month. If you’re interested in maximizing your earnings, check out these high-yield savings options on the Credible Marketplace and open an account today to boost your interest.
Compound interest allows you to make money on your principal balance and the interest you have already earned for a specific period of time (usually monthly or quarterly). Over time, even with the lowest interest rates, the money can actually add up. Even with the lowest interest rates in history, a high-yield savings account provides a safe place to store your hard-earned money. Again, consider your options with tools like Credible .
However, high-yield savings accounts also come with potential risks. Here’s what you should know:
Can You Lose Money Using a High Yield Savings Account?
A high-yield savings account is a good option for short-term savings, such as adding to your emergency fund, saving for vacations, or paying for a wedding. But you can also lose money. how?
- tax
- inflation
Here’s what you should know:
1. Taxes
The initial deposit is tax-free, but accrued interest is taxed as ordinary income. From the interest-bearing account he must report on his tax returns if in a year he made more than $10 in earnings. However, deposits to the account are not taxed, only the interest earned. That is, Uncle Sam receives a percentage of every dollar he earns in interest. In most cases, the tax rate is the same as the rest of your income.
2. Inflation
Inflation also affects how much you can lose on your high-yield savings account.
Let’s say your high yield savings account pays 2% interest on a $10,000 deposit. Leave it alone and after a year you will have $10,200 in your account.
If the inflation rate is 3%, you would have to earn $300 in interest to give your money the same purchasing power. As a general rule, whenever your high-yield savings account doesn’t grow at the same rate as inflation, you lose money.
Find out all about how to maximize your earnings with these high-yield savings options on the Credible Marketplace.
High yield savings account payouts are as follows
What are the other risks?
A high-yield savings account is a great place to store your cash. But they don’t come without some risks.
-
Interest rates fluctuate: This means that interest rates can change at any time. So the interest rate advertised when you open a high-yield savings account may differ from the interest rate you’ll earn after six months. -
You are to pay taxes on the interest you earn: This will reduce your tax refund (if any). -
You may need to file an amended tax return. If you don’t pay taxes on the interest you earn, you may have to file an amended return with the IRS and possibly pay a penalty. -
There is a limit on the number of transactions per month. A high-yield savings account allows only 6 transactions per month. Failure to do so may result in the risk of fees and account closure.
Also, be aware of all the traps that come with savings accounts, such as limited introductory offers, high minimum deposits, or hidden fees. Credible helps you find the high yield savings account that’s right for you. Visit their website to learn about high-yield savings accounts and how much you can save on interest.
What is the difference between a high yield savings account and a traditional savings account?
How else can you make more money?
High yield savings accounts offer higher APY than traditional savings accounts. But there are other ways to make more money, each with their own pros and cons:
- money market savings account
- CDs
Here’s what you need to know about each of these funding options.
1. Money Market Savings Account
Money market accounts offer competitive interest rates, but only if you maintain a relatively high minimum balance. They are FDIC insured and come with debit card and check issuance benefits. However, it is limited to 6 transactions per month and you can also pay a maintenance fee.
2.CDs
A Certificate of Deposit (CD) offers a higher APY than most high yield savings accounts. Unlike high-yield savings accounts where interest rates fluctuate, CD interest rates are fixed at the time of deposit. The account is insured with the FDIC, but the money is inaccessible for a given period of time. Alternatively, you may pay an early withdrawal penalty.
Should I put my money into a CD or money market high yield savings account?
final thoughts
High yield savings accounts offer higher APY than traditional savings accounts and some money market accounts. Although there is some risk involved, overall a high interest savings account is a good option to save money.
Looking for a way to save more? Find out how refinancing your student loan or refinancing your mortgage can lower your interest rates and lower your monthly payments.
Earn more interest on your money by opening a high-yield savings account
