You've probably heard about a high-yield savings account, but do you know how they work? Take a look at this guide and learn the main reasons why you should open one.
Most people feel tempted when they hear about a high-yield savings account, but not everybody understands exactly how they work. They have their pros and cons, so it's better if you analyze them closely.
What's a high-yield savings account
First things first: Let's define what a high-yield savings account is.
As you may have imagined, they are similar to a traditional savings account. They're the place where you should place your money to save for a certain goal or for future financial emergencies.
However, the key to high-yield savings accounts is that they offer a higher annual percentage yield (APY) compared to regular savings and checking accounts. This means that this kind of account helps your money grow as time passes by.
Bear in mind that you can only open high-yield savings account at online financial institutions.
Reasons to open a high-yield savings account
- Higher interest rate: When you put your money at a savings account you will receive lower rates of return, as it just reaches an APY of 0.09%. However, stashing your money in a high-yield savings account will grant you a higher rate of return, which can reach 1.60%.
- Savings habit: By opening this type of account you will be saving money for futures emergencies or for a particular aim. By making frequent deposits of just a few dollars you are already collaborating with your future needs.
- Reach goals faster: If you stash your money in a savings account you will avoid spending your cash you are trying to save in unnecessary purchases. As you can only make six withdrawals per month with this kind of account, you will be less likely to spend your savings.