What Is a High Yield Savings Account At Your Local Bank?

A high-yield savings account at a bank is a savings account offering a higher-than-average rate of return on the amount deposited. These accounts offer a better than the national average APY, provided that you can meet specific conditions (minimum balance/deposit requirements, maintenance fees, etc.). Each bank will have different rates depending on the account, how much you deposit in the account, and other factors.

APY & high-yield savings accounts – An example

In most cases, a high-yield savings account enables you to earn around 0.5% APY. In simple terms, APY is the number that tells you what you could earn in your account within a fiscal year. So the higher the APY, the more money for you, because the faster your balance will grow. When you deposit money in a local bank’s savings account, they lend it back out in the form of mortgages, credit cards, and loans. Banks make a 3-4% profit off your deposit and only give a return of approximately 0.5%. With Cashero Wallet, you’ll begin earning an APY of up to 6% right away.

Let’s use an example to help you understand the magnitude of what we’re talking about. Assume that you have $10,000 to deposit. With the sample APY rate of 0.5%, you will only earn a humble $50. However, if you deposit money to your Cashero Wallet with a 2-6% APY, you would make between $200 and $600 after 12 months.

Important notes:

Some high-yield savings accounts even have rates of return that decrease significantly after a certain period. More often than not, it can even result in a lower-than-average rate of return.

Best uses of a bank high-yield savings account

People often use a bank high-yield savings account when saving for large purchases. A higher interest rate helps you reach your goal more quickly. That’s why you may consider using a high-yield account for the following reasons.

A down payment on your 1st or 2nd home

– A Federal Housing Administration (FHA) loan requires a down payment of 3.5% or more. Traditional conforming loans are 10% or more. This climbs to 20% if you want to skip mortgage insurance. So on a $200,000 home, you would need to save $7,000, $10,000, and $40,000 respectively for each of these payments.

Let’s presume that a high-yield savings account could offer you up to 1% APY. In this case, you would need 12 months, 18 months, and 6 years respectively, to save the amount required for the down payment (with an initial deposit of $1,000 and around $500 each month).

College savings

– Everybody knows that college tuition costs can become overwhelming purely because of the amount needed. Although a college savings plan (i.e., a 529 plan) is an excellent option as the funds grow tax-free (even if you take the money out to pay for college), a high-yield savings account is a solid alternative. Using an online savings goal calculator can help you to plan how much you need to save in your high-yield account on a regular basis to reach your savings goal by a certain date.

Big family getaway

– First of all, it’s paramount to decide when you want to leave on holiday and how much you want to spend. You may even want to budget for food, accommodation, travel, and other items. And plan to save in your high-yield account accordingly.

Emergency funds

– These funds usually cover 3-6 months of living expenses and are held just in case the money is needed urgently. For example, if the air conditioning unit breaks down in the heart of summer or you’re unexpectedly laid off. Think of it as a rainy day fund.

A wedding or other goals with a short timeline

– According to the 2019 Real Wedding Study published by The Knot, the average wedding cost (not including the honeymoon) is nearly $34,000. If a high-yield savings account could offer, say, 6% APY, you could save for the big day in a shorter time frame. You could do the same for other expenses with a short timeline, such as buying furniture, or a vehicle, or even to have money aside for estimated taxes.

Things to consider when choosing a high-yield savings account at a bank

First and foremost, it’s important to weigh the APY against the set requirements to earn the interest when choosing a high-yield savings account. For example, one banking institution may offer a slightly higher APY than another. However, the second banking institution may require a higher minimum balance and deposit to open a savings account.

Other things to factor in before deciding to open an account are:

How often the bank’s rates change

– Check how often the financial institution you want to do business with adjusts its savings account interest rates. Unlike other financial products, the return rate of savings accounts tends to be variable rather than locked in for a period of time. A temporary promotional rate, for example, may seem appealing at first but could become much lower later on. Economic factors may also cause financial institutions to lower their APY (e.g., the coronavirus-related emergency rate cuts from the Federal Reserve in 2019). If you can find a savings account with a guaranteed rate for 6-12 months, then you’ve done yourself a favor.

A minimum deposit required to open a savings account at a bank

– The minimum deposit amount varies across financial institutions, with some banks requiring an initial deposit of at least $10,000 to open a high-yield savings account, while others require nothing. Most of them will probably ask for a minimum deposit of $100 or less. Determining how much you can deposit (realistically) will help you compare high-yield savings products and decide which account best suits your needs.

Minimum balance required

– Failing to meet the minimum balance requirements of some banks’ high-yield savings accounts can result in fees or failure to earn the high APY you wanted. This figure can be pretty steep, sometimes even over $10,000. A monthly maintenance fee is just one of the charges you may need to pay if you do not maintain a minimum balance in your bank’s savings account.

Withdrawing from your bank’s high-yield savings account

– Your bank account may limit the times you can withdraw from your savings account (e.g., up to six monthly withdrawals due to Reg D in the US). This rule is in place to help the banks maintain reserve requirements.

The Bottom Line

People often use a bank’s high-yield savings account when saving for large purchases. However, it is vital to research the terms and conditions offered.

Content Disclaimer:
As of the date of publication, the information contained on this page is deemed to be factually accurate for all terms of conditions, features, and fees on the app. Please note that changes made to Cashero’s terms of conditions, features, or fees after the time of publication of this content may not be accounted for.

App Disclaimer:
The Cashero App is now available for download in both the Apple App Store and Google Play Store. Please note that the full functionality of our app will be available in the following weeks once we have fully launched.

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