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A high yield savings account is a bank account that pays you more interest on your money than a regular savings account.
The term high yield savings account is often shortened to HYSA.
They also have the added benefit of earning some interest.
It is also known as high-interest savings accounts, since it offers a much higher interest rate than a regular savings account.
Savings accounts are used to keep your money safe and accessible, much like a child's piggy bank.
They're ideal for storing emergency funds, saving for short-term goals, or holding money you don't plan to spend immediately.
They also have the added benefit of earning some interest.
Typically, interest rates for regular savings accounts are low, even close to zero.
For example, some regular accounts offer 0.05% interest. If you put $1,000 in a regular savings account, you would only earn about 50 cents over a year.
A high yield savings account might offer an interest rate of 3% to 5%, or even higher.
In the same example, that could mean earning $30-50 - a significant difference.
A HYSA grows your money faster because of the higher interest.
It's still safe and easy to use, just like a regular savings account.
But you get more money over time, thanks to the high interest and the magic of compound interest.
To help understand the difference, consider using the rule of 72 calculator.
For 4% interest, your money could double in 18 years. For 0.05%, it would take much longer than even 100 years.
High Yield Savings Accounts aren't just beneficial for adults.
Kids and teens can deposit their allowances, earnings from part-time jobs, or financial gifts they received for birthdays and holidays into their own HYSAs.
Over time, they'll see their money grow, which can be an exciting introduction to the world of savings and personal finance.
Minors may require adults to help them open a bank account.
When you open a High Yield Savings Account, you deposit your money into it just like a regular savings account.
The bank pays you interest on that money every month.
Your interest rate is also known as the Annual Percentage Yield (APY).
APY is a rate that tells you how much money you'll earn over a year.
The bank pays you a percentage of your total money in the account, known as the interest rate, as a reward for keeping your money with them.
That payment from the bank gets added to your deposits in the account.
Interest payouts usually occur monthly and get added to your balance.
This means more passive income, helping you achieve your financial goals faster
That means, if left untouched, next month you'll earn interest on your original deposit plus any interest you already earned.
This is called compound interest.
There are usually no lock-in periods.
This means you can take your money out whenever you want. But remember, the goal is to save and let your money grow.
Most high yield savings accounts limit you to six withdrawals per month
But what if you need to withdraw money often?
Most high yield savings accounts limit you to six withdrawals per month.
After that, there's typically a small fee for each extra withdrawal.
In online high yield savings accounts, everything is done digitally, including deposits, withdrawals, and interest payouts.
That means there is no branch to go to for depositing money.
Everything needs to happen online, including funding your account.
That's why you'll probably need a separate bank account from a bank that has branches.
Let's look at an example. Say you have a high yield savings account with a 4% APY.
You put in $10,000 and don't touch it for a month. After that month, your money has grown!
With monthly compounding, your balance would be approximately $10,033.33.
That's $33.33 earned in just one month!
The interest earned on a HYSA is typically taxable.
Uncle Sam wants his share, even with interest from savings accounts.
The bank that holds your account will send you a Form 1099-INT each year.
you're only paying taxes on the interest earned, not the whole balance in your account
This form tells you how much interest you've earned on your account in the previous year.
You'll use this information when you file your taxes.
It's important to remember that you're only paying taxes on the interest earned, not the whole balance in your account.
So if you start with $10,000 in your HYSA and earn $400 in interest over the year, you'll only owe taxes on that $400, not the $10,400 total.
When it comes to saving money, every little bit helps.
That's where the interest rates on savings accounts come into play.
Overall, the national average savings account interest rates according to the FDIC is 0.42%
Overall, the national average savings account interest rates according to the FDIC is 0.42%.
But for the full picture, we need to break down the average between regular savings accounts and high interest accounts.
For regular savings accounts, the interest rates can be disappointingly low, often hovering around 0.06% APY or even less.
However, high yield accounts offer a different story.
the average HYSA rates are significantly higher, typically falling between 4% and 5%
As of 2023, the average HYSA rates are significantly higher, typically falling between 4% and 5% APY.
This means that for every $10,000 you have in your HYSA, you could earn between $400 to $500 in interest annually, compared to just $6 with a regular savings account.
Rates can fluctuate based on several factors, including the overall economy and the bank's specific policies. But even with these fluctuations, they tend to remain considerably higher than the rates offered by regular savings accounts.
Just like any other financial tool, High Yield Savings Accounts have their benefits and downsides.
Unlike other high-interest investment options, your money is not tied down
When comparing high yield savings accounts to Certificates of Deposit (CDs), think of the latter as a savings account with a timer.
With a CD, you agree to leave your money in the bank for a set period of time (for example 6 months, a year, or even more).
In return, the bank pays you a bit more interest than you'd get from a regular or high yield savings account.
But there's a catch: if you need to get your money out before the timer hits zero, you'll probably have to pay a fee.
Money Market Accounts (MMAs) are like a mix between a checking and savings account.
You typically get a higher interest rate than a regular savings account.
You also get some of the benefits of a checking account, like being able to write checks or use a debit card.
However, like a HYSA, you can't make more than a certain number of transactions each month, or you might face a fee.
HYSA stands for High Yield Savings Account. It is a type of savings account offered by banks and credit unions that pays a higher interest rate than a standard savings account. The high interest rate allows you to grow your money over time.
Opening a High Yield Savings Account (HYSA) with an online bank typically involves a few key steps:
Remember, different banks may have slightly varying processes, so ensure you follow the instructions provided by the bank you choose.
Yes, HYSAs are considered safe investments.
Most banks are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) up to $250,000 per depositor, per insured bank or credit union.
This means if the bank or credit union fails, you won't lose your money.
Make sure to check that the institution you are looking to deposit your funds with participates in these insurances that keep your money safe.
In terms of losing your deposited money, the risk in a High Yield Savings Account is extremely low.
Unlike investments which fluctuate in value and can result in a loss, an HYSA simply pays you interest on your deposited amount.
However, your balance could effectively decrease if you exceed the monthly withdrawals limit and get charged fees often.
The other risk is
Otherwise, even if your bank or credit union fails, your deposits are insured up to $250,000 per depositor, per insured bank or credit union, by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).
That's as long as that institution was a member of these organizations.
If your savings exceed these limits, you could potentially lose money.
High Yield Savings Accounts can play a crucial role in building generational wealth.
With the higher interest returns and the magic of compound interest, your savings can significantly grow over time.
This wealth can then be passed down to future generations, providing them with a solid financial foundation.
