A person can make an informed decision only after complete knowledge about the subject. The case of a high-interest rate account is no different. Clients must know the meanings and applications of multiple terms related to high yield saving accounts before selecting their best option. This article considers the following essential terms in this order:
Terms You Need To Know For High-Interest Rate Accounts
- The Net interest rate or Annual Percentage Yield (APY)
- Required Initial Deposit
- Routing Number
- Minimum Balance Requirements
- Deposit Options
- Compounding Method
- Withdrawal Options
- Certificate of Deposit
- APR
- FDIC
The NET interest rate or Annual Percentage Yield (APY)
Annual Percentage Yield calculates the net return that a client earns of his saving. This calculation factors in the effect of compounding the interest rate. Thus, an APY of 5 percent suggests that the initial amount will increase by 5 percent at the end of the year. However, this increase will occur gradually with compounded amounts entering the deposit account in each interval.
Required Initial Deposit
Most bank accounts, including a high yield savings account, require an initial deposit. The required initial deposit is the minimum amount that the user can pay for this deposit. Thus, an account with a required minimum deposit of 100,000 USD requires the client to deposit this amount. Otherwise, they can not open a high-interest rate account.
Routing Number
The routing number is the unique identification of your bank. A financial institution without a routing number cannot legally offer a high-interest rate account.
Minimum Balance Requirement
You cannot withdraw money from your account if the current balance becomes lower than the minimum balance requirement. Banks may block accounts that do not meet the minimum balance requirements.
Deposit options
These are the methods a client can use to insert money into their account. High yield savings accounts have limited deposit options.
Compounding Method
This important term refers to the regular interval at which the bank compounds your interest. A smaller compounding interval generates greater returns.
Withdrawal Options
These are the methods a client utilizes to withdraw money from their high-interest rate accounts. Most digital high yield savings accounts have limited withdrawal options. They may limit the withdrawal options to digital wallets as well.
Certificate of Deposit
It is also known as the CD. The certificate of deposit is proof of your deposit in the high-interest rate account. It also mentions the total amount of money deposited. Simultaneously, it mentions the period for the deposit. Usually, the longer the period, the higher the interest earned from the account.
APR
The annual percentage rate is the gross rate of return on your money in the high-interest rate account. The APR does not factor the compounding effect in its calculations.
FDIC
The Federal Deposit Insurance Corporation is a US state-funded and state-run organization. It supports the banking system by ensuring clients for 250000 USD of their savings. This insurance comes into effect in commercial banks fails. The National Credit Union Administration offers similar safety for credit unions.
Conclusion
A client must know different terms related to high-interest rate accounts before making their final decision. Knowledge of these terms improves the understanding of the client regarding what the account offers.
