The Advantages of a High-Yield Savings Account

Sometimes, investing in long-term stock options or other financial vehicles is not feasible, especially when such vehicles tie up your money. Instead, many people prefer to have emergency funds or additional savings in easily accessible accounts, often leaving them using regular savings or checking options, missing out on potential growth.

A high-yield savings account is a beautiful alternative to traditional savings accounts, and the federal government insures it up to $250,000. Unlike many conventional savings accounts, a high-yield account provides compounded interest at a higher rate, sometimes as much as double a traditional rate. For example, many conventional accounts hover around 0.5%, while you can find high-yield options at 1% or more.

While a high-yield account is not the best option for every investment endeavor, it is an excellent short-term accessible option. However, be aware of variable rates on these accounts, as you will often not hold the same interest rate throughout your investment period. Beyond that, there are several advantages to using a high-yield savings account.

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Access Without the Hassle

Anyone who has ever tried to liquidate other investment options knows it can be a hassle. Fortunately, when you put your money into a high-yield saving account, that is not an issue. In many cases, you can use the account just like any other savings, easily transferring money from the account into another checking account. However, there are a couple of minor drawbacks.

First, if you are using an online bank, which often provides the best rates, there is no brick-and-mortar building. Because of this, you might need to wait 24 to 48 hours for a transfer to occur. In some cases, you might need to pay a transfer fee if you want the money to arrive faster.

Second, as high-yield accounts are federally regulated, you do not have as much freedom as you would get from traditional savings. While these accounts do allow you to access your money, you are often limited to the number of transactions per month. For example, with most accounts, you are only permitted six transactions per month.

Zero-Risk Investment

Many people just starting with their savings are often nervous about the riskiness of the stock market. A high-yield savings account presents zero risks. The money you put in at the start will grow by the end of your investment term. You will lose nothing. As far as investments go, it is about the safest option out there.

However, before you throw all your money into a high-yield account, know that returns are not as good as alternatives with risk. While these accounts compound interest daily, which is lovely, they do not always grow at the same rate as inflation, meaning taking some of your money and investing in the stock market or other options is often a better choice.

Beginner Investment Vehicle, Expert Financial Tool

A high-yield savings account is an excellent option for a beginner looking to establish an emergency fund. However, it is also a decent financial tool even for the experienced investor. This savings vehicle is often a better savings option than a traditional account. As some online banks offer ATM cards, the money is often as easy to access as conventional checking accounts, with limitations. Regardless of your investment experience, a high-yield account is a decent investment asset to add to your portfolio.

Do you have a high-yield savings account? Leave a comment explaining your response.