Most of us are already familiar with the two general forms of bank accounts: checking and savings. However, not a lot of people know about the different types of savings accounts. There are plenty of different types of savings accounts, which include traditional savings accounts, money market accounts, certificates of deposit (CD), and high-yield savings accounts, among others.
In this article, we are going to focus on high-yield savings accounts. Specifically, we are going to discuss the pros and cons of this type of savings account to give you an idea of whether or not this could be a viable savings option for you. If you’re keen to get started on a high-yield savings account, we highly recommend that you check out the rates of UFB Direct high-yield savings accounts. UFB Direct is among the top choices for high-yield savings accounts because they offer some of the highest rates in the market today.
- High-Interest Rate
In comparison to a traditional savings account, a high-yield savings account will generally have a higher interest rate. To give you some sort of perspective, the average savings rate in the United States is only about 0.3%. On the other hand, high-yield savings accounts tend to have rates hovering over 4%. Taking a look at the bigger picture, this difference could mean thousands of dollars in opportunity cost if you continue going with a traditional savings account.
- Safe, Secure, and Insured
Aside from the fact that high-yield savings accounts are naturally safe against sudden changes in value, they are also covered by the Federal Deposit Insurance Corporation (FDIC). The FDIC insures up to $250,000 per depositor per bank. This means that you can still recover up to this amount in case the bank ultimately fails. Even if you are not aiming to keep this much money in your high-yield savings account, it still gives you some peace of mind as regards your investment. Thus, you won’t have to stress about losing all your money, which could also incentivize you to grow your savings further.
High-yield savings accounts also allow you to conveniently access your funds in case the need arises. Unlike other types of savings accounts, such as a CD, you won’t have to pay for early withdrawal charges or fees. Effectively, you can just take out however much you want or need without any hassle at all. This is extremely beneficial in cases where you really need the funds for the settlement of other financial obligations or in emergency scenarios.
- Limited Access to Funds
We have highlighted that high-yield savings accounts allow you convenient access to your funds whenever you need them. However, do note that some banks do not provide you with this option without cost. Some banks will often charge you a certain fee for making a withdrawal, which could quickly add up, especially if you’re making withdrawals much more frequently.
- Minimum Balance Requirement
One of the key differences between a traditional savings account and a high-yield savings account is that the latter may require you to maintain a minimum amount of cash inside the account. This could pose a problem, especially for those individuals who may have to constantly access and deplete their accounts for their regular purchases and payments. This could also be an issue for those who have unpredictable or inconsistent income.
- Limited Transactions
High-yield savings accounts are initially intended to be dormant accounts where the money inside is kept for prolonged periods of time. Thus, banks typically incentivize account holders to withdraw funds from their accounts. One of the many ways that banks achieve this is by limiting the number of transactions that the account holders may perform. This could be a potential deal-breaker for some people, especially those who may need to make frequent deposits or withdrawals.