Online banks are providing higher interest rates than brick and mortar banks and typically offer 20 times the national average bank rate of 0.05%, according to the Federal Deposit Insurance Corp. Interest rates for savings accounts and CDs declined several times this year because of the interest rate cuts by the Federal Reserve.
However, consumers should continue to allocate their money into a high-yield savings account even though rates are not as high as in previous years. Check out all the ways you can maximize your earnings with these high-yield savings options on the Credible marketplace.
Why open a high-yield savings account when rates are low?
“In today's low interest rate environment, high yield savings accounts offer savers a way to protect their principal while earning an above-average interest rate,” said Evan Kulak, co-founder of Polaris Portfolios, a Chicago-based financial planning firm.
High yield savings accounts have several features that benefit savers. It's important to remember that:
- Rates will eventually increase
- You still earn more interest compared to traditional savings accounts
- There are no risks
1. Rates will eventually increase
Interest rates are likely to increase over time as the economy rebounds from the lingering impact of the coronavirus pandemic.
“Investors are getting anxious about low yielding accounts and while in the short run this is painful, as the Federal Reserve targets higher inflation, rates are likely to improve,” said Daren Blonski, managing principal of Sonoma Wealth Advisors in California.
Visit Credible to explore high-yield savings options that could be making more money for them.
2. You still earn more interest compared to traditional savings accounts
Although the interest rates for high yield savings accounts are lower currently, they are still much higher than traditional savings accounts.
“Some high yield savings accounts currently offer 0.60% compared to the national average of 0.05%,” Kulak said. “Savers should carefully evaluate the account requirements.”
Online high yield savings accounts are also easy to open and access.
Consumers can link the account to another checking account or open a separate checking account within the same institution, said Camille Koppenberg, a financial advisor for Asset Advisors in Ferndale, Washington.
“An online high yield savings account is a great place to start building your emergency savings account with six to nine months worth of expenses,” she said.
Consumers can check out high-yield savings options via Credible’s marketplace to save extra cash.
3. There are no risks
Socking away your money in a high yield savings account is similar to keeping money in a traditional checking and savings accounts. All of these accounts are fully insured by the Federal Deposit Insurance Corporation for up to $250,000 per account.
Another advantage is that people have access to their cash at any time. Unlike a certificate of deposit, you can withdraw money from your high yield savings account without incurring a penalty or early withdrawal fee, Kulak said. The federal government does limit withdrawals from savings accounts to six a month and some banks charge a fee if you go over the limit.
Savers also have the flexibility to simply electronically transfer money between their bank accounts and high-yield savings accounts. This is especially beneficial if the high yield savings account is held in a different institution than your primary account,
Another benefit? The process of opening a high-yield savings account can often be completed online by filling out an application without physically going to the bank, said Leslie Tayne, a Melville, N.Y. attorney specializing in debt.
“This type of account allows you to have a liquid savings option that offers more than your traditional account for short-term goals,” she said. “These benefits are often a good fit for a financial plan that includes savings for emergencies, vacations, or other goals.”
Consumers can start saving money by opening a high-yield savings account and increasing the amount weekly or monthly when they have additional cash. Many banks do not require a minimum deposit amount.
“Even if you do not have a large amount of money to initially deposit into, it is better to open an account and start saving rather than waiting,” Kulak said. “Most high yield savings accounts have no monthly maintenance fees or minimum balance requirements. Furthermore, you can set up recurring deposits or enroll in an automated smart deposit service to grow your savings over time.”