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How Do High-Yield Savings Accounts Work?

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11 Jan 2022, 22:24 GMT+10

Introduction

Since you were a little kid, you knew that money was something you should save. It is important to put aside some of your allowance or earnings in order to invest for the future right away. This means that instead of spending your money on candy and toys at the mall, you save it. Now, the stakes are higher, and you've started making good money, you choose to put it in a savings account so that inflation does not decrease its value over time.

Are you looking for the best place to hold your savings? If so, you are not alone. Millions of people are trying to find ways for how they can keep their money safe yet accessible in case they need it at any moment. Luckily, high-yield savings accounts might be exactly what you are looking for!

If you are not familiar with what high-yield savings accounts are, let's look at the following article in order to understand how they work.

What Are High-Yield Savings Accounts?

A high yield savings account is an interest-bearing banking account that pays you more than the average for keeping your money in it. It may sound like a dream come true, but it is actually possible. Online high-yield savings accounts are quickly gaining in popularity because of their ease of use, high interest rates and convenience.

Features of High-Yield Savings Accounts

Interest Rates

Currently, the interest rates on high yield savings accounts can reach around 0.40% APY. In comparison, the national average for savings accounts is 0.06% APY. As you can see, the percentage is much higher. It might sound crazy but some account interest rates go up to 5% APY! Choose wisely.

Compounding

Compounding is another way that your money can make you more. When interest earned from an initial deposit is not only paid out but can also earn interest, it's called compounding. This helps your money grow faster than just having your money in a regular savings account would allow.

How much interest can you make on $1,000? If you can put away a greater amount of money, you'll earn more interest. If you save $1,000 for a year at 0.01 percent APY and then withdraw it all at once, you will have $1,000.10. You could earn about $5 on this same amount if you save it in a high yield savings account.

Choosing a High-Yield Savings Account

What is the account's current interest rate? Do they offer the standard rate or an introductory rate? Savings account rates are typically adaptable, and they may be changed. However, some accounts warn that the advertised rate is only available for a specific period. Also, make sure there aren't any minimum or maximum balance requirements in order to earn the advertised rate.

It's also important to understand what fees there may be associated with your account, if any. Some accounts have fees for using your debit card or receiving a text message. Make sure you are aware of any account requirements or fees before opening an account.

Can I withdraw my money at any time without penalty? Many high-yield savings accounts allow you to write checks from the ATM against your balance, which means that it is just like a checking account. You cannot always withdraw money at will from a high-yield savings account, so it's important to find out how often you can do this before you sign up for an account.

Conclusion

It's simple to use a high-yield savings account. You just need to get one that suits your needs, deposit your money into it and leave it there until you need access to the funds for investing or spending later on.

Key Takeaway: A high-yield savings account makes it easy for you to grow your money into more money by allowing your initial deposit to earn interest on itself as time goes by. Simply choose an account that meets your needs, deposit your money, and watch it grow!

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