Living paycheck to paycheck is difficult, and most of us have done it at some point. It means you’ll have to spend your whole paycheck before the next one comes in, which leaves little to no space for unforeseen costs like accidents, medical crises, and other charges that might put you in the red financially. Also, it makes it more difficult to save money for retirement, a down payment for a home, or the repayment of high-interest debt like credit cards or school loans.
The more needs we have, the more important it is to save money away. Just a tiny percentage of Americans (71%), who have active savings accounts at their banks and receive a much higher annual percentage yield (APY) and guarantee larger returns, have high-yield savings accounts. Let’s talk about high-yield savings accounts, how they vary from standard ones, and your possibilities.
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Key Takeaways
- Standard savings accounts typically offer a lower interest rate than high-yield savings accounts.
- When compound interest is taken into account, the annual percentage yield (APY) shows the actual rate of return on investment.
- Savings accounts up to $250,000 are covered by the Federal Deposit Insurance Corporation.
What Is A High-Yield Savings Account?
It has long been customary to have both a checking and a savings account with the same financial institution since doing so makes money transfers between the two quick and simple. The rivalry for savings rates, however, has intensified with the rise of internet-only banks and well-established financial institutions that have opened their doors to people throughout the nation via online account creation, giving rise to a new category of “high-yield savings accounts.”
High-yield savings accounts provide a significant income increase above the average. For instance, a person with $50,000 in savings would only make $50 a year if the average annual percentage yield (APY) on savings accounts is 0.10%. Conversely, you might deposit that $50,000 into a high-interest savings account, where you could withdraw more than $2,000 thanks to the typical 4% APY.
How Is APY Determined?
When compound interest is taken into account, the annual percentage yield (APY) represents the rate of return on investment. Compound interest is computed more often than simple interest and is instantly applied to the principal balance.
The interest will rise over time because it is based on the cumulative balance.
The rate of return is standardized using the annual percentage yield (APY). In the event that the funds have already been deposited, it determines the real annual growth rate projected by compound interest. The following equation may be used to calculate APY:
R = period rate
N = is the quantity of compounding cycles.
Ten of the best high-yield savings accounts
It’s important to evaluate the bank’s other services in addition to interest rates when acquiring a high-yield savings account. How much of a balance is necessary at all times? Alternately, what is the minimum deposit? We’ve selected 10 financial organizations below based on their APY rates and general health.
1. UFB Direct – High Yield Savings Account
2. Ivy Bank, Indexed Savings Account
3. Salem Five Direct, eOne Savings
4. Bread Savings, High-Yield Savings Account
5. Bask Bank, Interest Savings Account
6. Popular Direct, Ultimate Savings Account
7. TAB Bank, High Yield Savings Bank
8. CIT Bank, Platinum Savings
9. My Banking Direct, High Yield Savings Account
10. Primis Bank, Savings Account
How Secure Are Your Money in Bank Accounts?
Naturally, you’ll be concerned about the security of your savings while depositing your hard-earned cash in a bank. What happens if the financial institution fails? Thankfully, you’re secure if your funds do not total more than $250,000.
For each insured bank, the Federal Deposit Insurance Corporation (FDIC) guarantees deposits up to $250,000 per customer. The vast majority of banks, both traditional and online, are covered by this insurance. Similarly, the federal government’s NCUA insurance offers up to $250,000 in NCUA insurance protection for credit union members in the United States.
Hence, whether you bank in person or simply online, the security of your funds remains the same. Just check to see whether a new financial institution has the FDIC or NCUA emblem before doing business with them.
Final Claiming
It feels good to save money away knowing that it will appreciate over time. Nonetheless, the present economic turmoil demonstrated that there is always a large danger of inflation and that interest rates frequently fluctuate. Hence, investing in real estate, commodities, or any other assets may be a more profitable alternative if you are saving your money in a bank for long-term, ten-year goals.
Disclaimer: The article’s APY rates and bank requirements are current as of its publishing, but they are subject to change in the future.
