A high-yield savings account is a deposit account provided by online banks and credit unions that offers a significantly higher interest rate than a standard savings account. This high interest rate translates to faster growth of deposited funds, ensuring a greater return on deposits. These accounts typically pay up to 10 to 12 times more than the national average of a standard savings account, which is an average of 3% interest rate in India as of 6th March, 2023.
Are high-yield savings accounts worth it
Holding a high-yield savings account is worth it as it is an ideal option for those looking to save for short-term purposes, such as an emergency fund or a big upcoming purchase. This type of account can help you grow your money risk-free and reach your financial goals faster than a conventional savings account. For instance, saving for a sizeable down payment for your car can help you reap higher interest, and the extra funds earned can be used for your monthly payments.
If you are looking for a safe investment option, you can consider fixed deposit. They offer guaranteed returns and a fixed interest rate throughout your investment tenure.
What is the difference between a high-yield savings account and a CD
Understanding what is a high-yield savings account versus a certificate of deposit (CD) assists in selecting the most suitable option for your financial goals. Both of them allow you to deposit money to earn interest on your balance. However, the interest rate offered by high-yield savings accounts can change while your money is in the account. With CDs, the rate you lock in when you make a deposit stays the same throughout the term. Moreover, unlike with CD, a high-yield savings account allows you to tap into your funds anytime. If growing your savings for the short term is a priority, a high-yield savings account is ideal. Whereas opening a CD is a good idea if you are saving for a long-term goal ranging from six months to two years.
Are high-yield savings accounts safe
A high-yield savings account is a safe option as it is regulated by the Reserve Bank of India (RBI) and subject to deposit insurance provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), ensuring protection for deposits up to a certain limit in case of bank failure.
Cons of a high-yield savings account
- High-yield savings accounts are not designed for everyday banking, such as paying bills or buying groceries.
- Because these accounts offer better interest rates than standard savings accounts, they may have stricter requirements, such as higher initial deposit amounts or withdrawal limits.
- While you earn interest on a high-yield savings account, it may not be enough to keep up with inflation or accomplish long-term goals such as retirement savings. Understanding what is a high-yield savings account's interest potential helps individuals make informed financial decisions.
If you are looking to diversify your investments portfolio, Fixed Deposit (FD) can be a good choice. FDs provide a fixed interest rate throughout the investment period. Interest rate on FDs does not change with market fluctuations. NBFC’s like Bajaj Finance offers one of the highest rate of up to 8.65% p.a. on their Fixed Deposits.
Should I put my money in a high-yield savings account or invest
The most commonly asked question by investors is, what is a high-yield savings account’s benefit compared to investing? Simply put, it is a safer option for steady growth. Investing may bring higher annual returns, but it also brings the risk of unpredictable returns. A high-yield savings account offers a competitive interest rate without the risk of losses. While the interest rate is variable, this account can be a great option for growing your savings while avoiding the risks associated with investing in the stock market. If your goal requires quick access to funds, you may prefer holding your money in a high-yield savings account.
Does deactivating a high-yield savings account affect credit score
Another important question you may have is, what is a high-yield savings account's impact on the credit score? Essentially, it is minimal since savings are not a credit product. Your credit score is based on how you manage borrowed money and whether your accounts have debts. While closing a bank account does not hamper your credit score, having a negative balance when the account is closed can negatively impact your credit score.
What to look for when opening a high-yield savings account
The first thing you may want to consider when opening an account is the high-yield savings account's rate of return on your deposits. Interest earnings help boost your savings balance, but if you choose an account with high potential fees, it could soon start eating into your savings. Common fees include wire fees for outgoing or incoming transfers, charges for leaving your account inactive and more. Another factor is the minimum balance requirement. If you do not already have a lot of money in savings, check whether the high-yield savings account you choose requires a minimum balance.
Fees and minimum balances
High-yield savings accounts are generally free as they are offered online, which allows banks to have lower overhead and pass the savings on to customers.
However, it is important to evaluate what is a high-yield savings account’s fee when exploring your choices. Some financial institutions may charge monthly maintenance and minimum balance fees.
Fully digital banking
High-yield savings accounts provide competitive interest rates as they are offered online. This makes them ideal for clients who prefer convenient online banking. Moreover, these savings accounts are provided on user-friendly online platforms, allowing you to effortlessly manage your account, set up automatic transfers and track transactions.
