Looking for a safe place to store your money? You might want to consider a high-yield savings account.
In short, high-yield accounts are basically savings accounts that pay better-than-average interest rates. These higher rates may come with certain conditions, so it’s wise to shop around to make the best account choice for your goals.
How do high-yield savings accounts work?
A high-yield savings account functions similarly to a regular savings account. You deposit money into the account and earn interest on the balance. The account’s annual percentage yield, or APY, is how much interest you earn over a year.
What are high-yield savings accounts good for?
High-yield savings accounts can help you get one step closer to accomplishing your savings goals.
Emergency fund savings
Experts recommend stashing away three to six months' worth of expenses in an emergency fund. A high-yield account will keep your money liquid and easily accessible if you need it.
Savings for the short term
If you have a short-term savings goal, such as an upcoming vacation, a high-yield account can help you save up faster.
Making a big-ticket purchase
If you need one central place to keep your money for a large expense, such as a down payment for a house, a high-yield savings account can maximize your savings and keep your initial principal safe.
High-yield accounts are basically savings accounts that pay better-than-average interest rates.
Comparing the pros and cons of a high-yield savings account
Earning more interest on your deposits sounds like a no brainer. But consider these other factors before you deposit your hard-earned cash:
Benefits:
Accessibility: With most high-yield accounts, you’ll be able to take your money out whenever you want without penalty.
Safety: Like traditional accounts, high-yield accounts are typically federally insured.
Disadvantages:
Stricter requirements: Your account’s higher rate of return might come with more robust requirements, such as a higher initial deposit amount or withdrawal limits.
Not for long-term goals: High-yield savings accounts aren’t efficient tools to save for long-term goals like retirement since the rates likely won’t keep up with inflation. In those cases, you may want to consider other investment options.
Variable interest: Rates aren’t locked in for high-yield accounts and can go up or down at any time.
How to choose the right high-yield savings account for you
Not all high-yield savings accounts are built the same. When comparing potential accounts, keep these factors in mind:
Competitive rate: Since higher interest rates are the number one benefit of these types of accounts, it makes sense to shop around for the best available.
Account terms: Read the fine print for additional requirements like initial deposit amounts, minimum balance requirements or account fees.
Bank reputation: Whatever your savings goals, you want to trust your bank to keep your money safe.
Compounding interest: Compound interest is interest that builds on other interest. This might happen daily, monthly, quarterly or annually. Find out how often your interest compounds to determine how fast your balance will grow.
Account extras: Your bank account can be more than just a place to store your money. Ally Bank offers budgeting and goal-setting tools that can help you simplify and organize your savings.
How to open a high-yield savings account
Opening a high-yield account is similar to opening a savings account. Here's how to do so:
Gather your personal information and identification, like a driver’s license. Be ready to provide your date of birth, address, phone number and email.
Fill out the application (which shouldn't take more than 10 minutes).
Now you’re ready to fund your account. You can fill out a direct deposit form, link a checking account, deposit a check or make a wire transfer.
Finally, set up online banking for a user-friendly way to manage your money.
Save on
Whether you’re working toward specific savings goals or just looking for a safe place to store your cash, traditional savings accounts aren’t your only option. As you compare accounts, consider whether a high-yield savings account is right for you.
