As the name implies, a high-yield savings account pays you more. But that’s not all.
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Ever since the financial crisis and subsequent low-interest environment, savings accounts acquired an awful reputation. This certainly makes sense -- many bank savings accounts have been paying interest rates of just 0.01% and continue to do so although market interest rates for virtually every other financial product have increased in recent years.
However, online-based savings accounts have become much more popular, and for good reason. Because of their lower-cost business model of having no physical branches, online banks can pass some of their savings on to the customer in the form of higher interest rates, lower fees, and some pretty nice features. Here’s a rundown of why you might want to switch to a high-yield savings account right now.
1. Higher yield
This is perhaps the best and most obvious reason to open a high-yield savings account. According to the FDIC, the U.S. average savings account yield is a paltry 0.09%.
Meanwhile, some of the best online savings accounts (note: The highest-yielding savings accounts are generally offered by online-based banking institutions) pay upward of 2%. For example, one of the highest-yielding savings accounts offers a 2.25% APY as of this writing -- that's 25 times the national average.
Here’s why this matters so much. Let’s say that you maintain a $10,000 savings account to cover unforeseen expenses and such. In an average-yielding savings account, you can expect your account balance to rise to about $10,045 after five years. With a 2.25% yield, you’d have $11,177 after the same time period. That’s an additional $1,132 just for moving your savings to another FDIC-insured savings account.
2. Lower fees
In addition to paying more, high-yield savings accounts often charge fewer fees than traditional savings accounts, and in some cases, none at all. With many online-based high-yield savings accounts, there are no service charges or transaction fees for transferring money, nor is there a monthly service fee. Some don’t even charge customers a fee for sending a wire transfer.
There are several excellent options if you’re looking for low fees in addition to a high APY. So, take a look at the best online savings accounts and compare the current rate and fee structures, as well as the features of each, to see which might be the best choice for you.
3. ATM access can be better than a traditional bank
Here’s one that really surprised me when I first signed up for a high-yield savings account online. I was worried that it would be difficult to access my money, and that I’d have to pay a fee every time I wanted to make a withdrawal.