High Yield Savings Account

High Yield Savings Account: Earn 5X More Interest

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Suppose you are saving money in a normal savings account – but with better returns. That is a high yield saving account. The biggest advantage? You get more interest on your money.

While traditional banks offer a nominal interest rate of 0.01%, high yield saving accounts can give you 4–5% or even more.

If you are building an emergency fund, saving for a vacation or saving for a small goal, a high yield saving account is a smart choice. Your money will grow slowly and you can withdraw it whenever you need it.

Why is it called “high-yield”?

  1. “High-yield” means high-return. They have higher interest rates than traditional savings accounts because:
  2. These accounts are typically offered by online banks that don’t operate branches, which keeps their costs low — and that benefit is passed on to customers.
  3. Their interest rates fluctuate with the market. When the Federal Reserve raises interest rates, high yield savings account rates rise.
  4. Note that interest rates aren’t permanent. They can change.
  5. But they still grow your money better than traditional accounts.

How does a High Yield Savings Account work?

  1. First, you open an account online. You just need to enter information like your name, address, and social security number.
  2. Then link the account to an existing bank account so that money can be transferred.
  3. Deposit money — whether by check, direct deposit, or manual transfer.

Now your money will grow with the help of compound interest.

  1. Compound interest means that you earn interest not only on your deposit, but also on the interest you earn on it.
  2. Most banks compound interest daily and that interest is added to your account at the end of the month. It is the power of compound interest that makes money grow faster.

Is a High Yield Savings Account safe?

Yes, if the bank is FDIC insured. FDIC insurance protects up to $250,000.

But this protection only applies to cash in a bank account. It does not include stocks, mutual funds, or crypto.

Also, pay attention to some things for security in an online high yield savings account:

  1. Multi-factor authentication
  2. SSL encryption
  3. Automatic logout
  4. Strong firewalls
  5. Avoid banks with no security features.

How does Compound Interest work?

Let’s say you deposited ₹1,00,000 in a high yield savings account with an APY of 5%.

So at the end of the year, you should get ₹5,000, right? But thanks to Compound Interest, you will get more than that because you are earning interest on interest.

Day 1: Interest on ₹1,00,000

Day 2: ₹1,00,000 + Day 1 interest — Interest on this

And so on every day…

This is why Compound Interest is called “interest on interest” and it makes money grow faster.

Compound Interest can multiply your savings manifold in the long run, without any risk.

What to look for when choosing a high yield savings account?

Ask these questions before opening an account:

  1. Is the APY (Annual Percentage Yield) good?
  2. Is there a minimum balance required to earn higher interest?
  3. Are there any monthly fees or maintenance charges?
  4. How easy is it to deposit and withdraw money?
  5. How is the mobile app?
  6. Is the bank FDIC-insured?

The right high yield savings account is one that:

  1. Has a good APY,
  2. Has no fees, and allows you to transact easily online.

Advantages and Disadvantages :-

Advantages:

  1. Higher interest — your money grows faster.
  2. FDIC protection
  3. Online access
  4. No risk
  5. Benefit from compound interest

Disadvantages:

  1. Interest rate may decrease
  2. Not good for long term investment
  3. Limited withdrawal
  4. No debit card or cheque book

Should you switch HYSAs often ?

If a high yield savings account from another bank is offering a higher APY and your bank has reduced rates, it may be worth switching.

Just make sure:

  1. The new bank is safe
  2. There are no transfer fees
  3. The account is set up quickly

Pay attention to tax

The interest you earn on your high yield savings account is taxable.

If you have earned ₹800 or more in interest in a year, the bank will give you Form 1099-INT. This will be taxed as income.

Final Words

If you are not earning 4-5% interest on the money you save, you are literally losing money.

  1. A high yield savings account:
  2. It is easy,
  3. Safe,

And gives you good returns without the risk through the power of compound interest.

Just make the right choice, avoid fees, and check rates regularly.

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