High Yield Savings Account

High yield savings accounts are savings accounts with significantly higher interest rates than a traditional bank account. These accounts can be a safe place to keep capital and earn interest, as they are protected by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 and can have annual percentage yields (APY) several times the national average of a standard savings account.

Investors typically utilize high yield savings accounts for emergency funds, short-term saving goals, or storing windfalls. By keeping money that is not tied up in investments or needed for day-to-day expenses in these accounts, investors can see returns they would not otherwise have. For example, if someone has $10,000 in a savings account earning a typical 0.05% APY, they would earn about $5 in a year. If that investor put the same $10,000 into a high yield savings account with 0.5% APY, on the other hand, they would earn about $50. While not the most significant return, this is clearly a superior alternative for money sitting in a savings account. With that said, the APY on these accounts does not keep pace with inflation, making them a poor option for long-term financial goals such as retirement. 

Special Considerations

When choosing an account, there are a number of factors to consider, including the following:

  • APY: This will indicate earning potential and serves as an initial point of comparison.
  • Minimum balance requirements: Some high yield savings accounts require investors to make a minimum deposit and maintain a minimum balance in order to earn returns.
  • Monthly Fees: Some accounts charge monthly maintenance fees that may be waived for maintaining a minimum balance or making monthly deposits. This can detract from the interest earned, so it is important to make sure earnings will not be consumed by fees, especially when depositing smaller amounts of capital. 
  • Online Banking: Investors are rarely able to open high yield accounts at the same financial institution as their traditional savings and checking accounts. Because of this, it is important to consider less quantitative factors such as customer service, ease of withdrawal, and mobile experience. Electronic transfers between a high yield savings account and checking account should be simple, even if held at different banks.

Savings Alternatives

High yield savings accounts are one of many alternatives for saving; others include money market accounts and certificates of deposit (CDs). EquityMultiple has introduced another option, Short Term Notes, which are functionally comparable to a corporate bond and offer much higher rates of return.  

While not as liquid as a savings account, Notes can be a great opportunity for investors looking for a high-yield alternative with short term holds and monthly distributions. These diversified notes are used to pre-fund certain real estate investments on the EquityMultiple platform. In return, investors receive monthly interest payments. There are no fees associated with Short Term Notes.

The Bottom Line

High interest accounts are a strong alternative to a traditional savings account. FDIC insured and offering competitive rates, these accounts make for a great middle ground for capital and are included in many well-diversified portfolios.

 

*Past performance does not guarantee future results

*APYs are based on Bankrate’s National Average survey data, as of August 2021

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